Study On The Stability Of Monetary Demand Under Openness Economy

Under the increasingly serious financial crisis, whether China's monetary policy's basis—monetary demand—is stable or not is becoming the focus of research. Currently, research on monetary demand, especially under backgrounds of open economy, is theoretically and practically meaningful.This paper sets up a monetary policy based on China's truths with the help of modern advanced statistical methods such as E-G co-integration method, ADF unit root test method and Johansen method. All of these works are based on data. Then the paper tests the stability of the monetary demand model and the significance of its parameters. The results show that the E-G method are helpful for the stability of monetary demand; foreign interest rate is a factor affecting the model's stability, but not stable; exchange rate is an key factor for the stability of monetary demand model, but the cash substitute effect indicates that the monetary policies between country may conflict and the effects of monetary policy might be weakened. There are several innovations in this paper:Firstly, the methods are advanced. This paper combines macroeconomic theory and advanced statistical method to set up a modern monetary demand model with the help of statistical software such as SPSS and EVIEW.Secondly, the model is innovative: the paper sets up a model considering the open economy and foreign exchange rates.Thirdly, this paper uses comparative static analysis, comparative analysis and elasticity analysis, which details the analysis.Fourthly, the paper makes a out-of-sample forecast, and the result shows that the model that this paper sets up is useful for short-term forecast, and the results are very accurate.