LONG-RUN MONEY DEMAND AND INFLATION IN CHINA

This article reports on the stability of the long-run money demand fun ctions for three definitions of money in China. Using annual data from 1951-1991, I have found. that the long-run money demand functions usi ng MO and M2 exist and are stable throughout the sample period, which includes pre- and post-reform years. Further, it is found that the inc ome elasticities of the real money demands for MO and M2 are around 1. 4-1.5 and 1.8-1.9. The results indicate that to control inflation unde r 10% in China, the targeted M2 growth rate should not exceed 28-29%.