Abstract
The dramatic monetary expansion since 1978 is a prominent feature of the Chinese economy. Despite repeated attempts, fitting a standard money-demand model to Chinese monetary aggregates has not yielded satisfactory results. An unconventional disaggregate approach is adopted to study the three components of M2: currency, personal deposits, and institutional deposits. Both monetization and excess supply are important to the currency behavior. The behavior of personal deposits is modeled as a problem of determining the rate of financial saving. The behavior of institutional deposits was influenced decisively by the availability of bank credit and the tightness of monetary policy.J. Comp. Econom.,September 1998, 26(3), pp. 544–564. University of Alberta, Edmonton, Alberta T6G 2H4, Canada.
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