MONEY, OUTPUT, PRICE AND CAUSALITY IN MAINLAND CHINA

This paper re-examines the relationship between money and other macroe conomic variables in mainland China. The results of a four-variable VA R analysis are indicative of a bi-directional causality between narrow money supply and real income. However, contrary to most research work in this area, the findings support a uni-directional causality from b road money to real income, making the former a good intermediate targe t variable. Moreover, these results cast serious doubts about the rele vance of the quantity theory of money for price determination in China .