Monetary services and money demand in China

Using Barnett's methodology, we construct a monetary services index (MSI) f or China. Compared to the traditional simple money aggregates, this index h as solid microeconomic foundations, and has consistent variables. With Chin a's on-going economic reforms in full swing, this index may provide a more appropriate indication of the current rapid process of economic monetizatio n and financial innovations. In addition, we find that it is capable of usi ng the MSI to replace the conventional simple-sum aggregates in estimating long-term money demand. This may provide attractiveness for the People's Ba nk of China (PBC) to include the index as an alternative target variable in concluding its monetary policy during the period of rapid economic transit ion. (C) 2000 Elsevier Science Inc. All rights reserved. JEL classification : E41; E52; P52.