02033cas a2200241 a 4500 AALejournalIMF005874 230101c9999 xx r poo 0 0eng d 5.00 USD 9781451872781 1018-5941 BD-DhAAL BD-DhAAL Wu, Ge. Broad Money Demand and Asset Substitution in China / Ge Wu. Washington, D.C. : International Monetary Fund, 2009. 1 online resource (30 pages) IMF Working Papers <strong>Off-Campus Access:</strong> No User ID or Password Required <strong>On-Campus Access:</strong> No User ID or Password Required Electronic access restricted to authorized BRAC University faculty, staff and students Recent changes to China's financial system, in particular ongoing interest rate liberalization, gradual movement toward a more flexible exchange rate regime, and rapid development of capital markets, have changed substantially the environment in which monetary policy operates. In light of these changes, we estimate an error correction model using a General-to-Specific methodology and confirm that a stable broad money demand function exists taking proper account of asset substitution, with an income elasticity of less than unity. Current inflation is found to have a significant negative impact on the real money demand. However, money demand does not appear very sensitive to interest rates, possibly reflecting their partial liberalization. Changes in the exchange rate also do not affect money demand significantly, but expectations of a further renminbi appreciation since 2005 appears to induce more money demand. Stock prices are statistically insignificant despite recent investors' interest in equity markets. Mode of access: Internet IMF Working Papers; Working Paper ; No. 2009/131 Full text available on IMF http://elibrary.imf.org/view/journals/001/2009/131/001.2009.issue-131-en.xml IMF e-Library