Empirical Analysis Of The Stability Of Money Demand Function

The stability of the monetary demand function is the important precondition for the selection of the monetary supply volume as the intermediate target of the monetary policy. The research for the stability of the monetary demand function has never been interrupted. However, due to the different view and different methods, the final conclusion also differs. Thereafter, the concerning reaearch for the stability of the monetary demand function could not show consistency, also the debate for the selection of the intermediate target of the monetary policy are in the progress.Since 1996, China has adopted the monetary supply volume as the intermediate target of the monetary policy. However, the actual monetary supply volume always deviate from the anticipated volume during the execution of the monetary policy, so lots of scholars concluded that the monetary demand function of our country is unstable and suggested the other index such as the interest rate, the inflation rate as the intermediate target. On the basis of the monetary demand theory and the past research results for the stability of the monetary demand function, I integrate the theoretical research into the econometrical analysis, adopt the error correction model(ECM) and collect the seasonal data from the first season of 1995 to the fourth season of 2004 to study the stability of monetary demand in China. The analysis results shows that both Ml and M2 in China has the long-term cointegration relationship with the economic variables. Thereafter, the monetary supply volume could be treated as the intermediate target in the view of the relationship between the final targets of the monetary policy and the monetary supply volume. Meanwhile it also shows M2 is a proper choice as the intermediate target for the short term.The first part mainly introduces the connotation of the stability of the monetary demand function and its research meaning and it shows that the stability of the monetary demand function is the stable relationship between the monetary...