An Empirical Analysis Of The Effect Of Money Supply On Real Output In China

In this paper we set up a money-output vector autoregression model, using cointegration test and Granger's cause-and-effect test to analyze the relationship between money supply and real output based on Chinese quarterly data from 1998 to 2004. The results show that there is a cointegration relationship between money supply and real output, and that money supply is the Granger cause of real output. These indicate that money is non-neutral in China and that money supply is an important instrument of central bank to regulate economy macroscopically.