Stock prices and demand for money in China: new evidence.
This paper investigates the relationship between stock prices and the real money demands for China within a cointegrated framework. This study reports two important results. First, test results reveal that a stable long-term relationship exists between broad money (M2) and its determinants including...
| Main Authors: | , , |
|---|---|
| Format: | Article |
| Language: | English English |
| Published: |
2009
|
| Subjects: | |
| Online Access: | http://psasir.upm.edu.my/id/eprint/16849/ http://psasir.upm.edu.my/id/eprint/16849/1/Stock%20prices%20and%20demand%20for%20money%20in%20China.pdf |
| Summary: | This paper investigates the relationship between stock prices and the real money demands for China within a cointegrated framework. This study reports two important results. First, test results reveal that a stable long-term relationship exists between broad money (M2) and its determinants including real income, foreign interest rate, and stock prices. Second, stock prices have a significant substitute (positive) effect on long-run broad-money (M2) demand and its omission can lead to serious misspecification in the money demand function in both the short- and long-run. Finally, we demonstrate that long-run income elasticity is not significantly different from unity with the inclusion of stock prices in the money demand equation. |
|---|