Non-linear model for China's money demand function

Abstract

In order to study the nonlinear characteristic of China's money demand function, this paper adopted STAR (smooth transition auto regression) model to make the empirical test. The result indicated that China's money demand function had significant nonlinear characteristics and the transition variable was one lag of real national income, rather than the inflation rate, the conversion rate was significant, but slow, the slope value of the transfer function was -2.64. Finally, this article suggested that the fiscal policy and monetary policy should be different according to the variation of real income.