Long Run Demand for Money in China:Evidences of Cointegration Tests

I Introduction

lFor Keynesian monetary theory, the demand for money is determined to great extent by income due to transaction and precautionary motives and interest due to speculative motive.
lBaumol (1952) finds the optimal stock of cash based on inventory model.
lFor modern monetary theory, Friedman finds based on its empirical study that the demand for money is affected mainly by wealth and real permanent income rather than by interest.
lMeltze (1963) finds that interest is the important factor in determining the function of the demand for money (M1).
lDarrat and Suliman (1994) suggest that money growth volatility and velocity are unrelated and supported by some cointegration tests.
lThis paper employs cointegration to investigate the long run demand for money in China, particularly addressing the effects of velocity of money circulation on the demand for money.

II Data
III Methodology
IV Empirical Results
V Conclusion