Asymmetric effects of exchange rate changes on the demand for money in China |
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| Authors: | Mohsen Bahmani-Oskooee Dan Xi Sahar Bahmani |
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| Affiliation: | 1. Center for Research on International Economics, University of Wisconsin-Milwaukee, Milwaukee, WI, USA;2. School of Finance, University of International Business and Economics, Beijing, China;3. College of Business, Economics and Computing at the University of Wisconsin at Parkside, Kenosha, WI, USA |
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| Abstract: | In order to account for currency substitution, the majority of recent studies relating to the specification of the demand for money include the exchange rate as another determinant of the demand for money. However, those who have estimated the demand for money in China have been unable to find any significant effects of exchange rate changes on the demand for money by the Chinese. We show that this is due to the assumption that exchange rate changes have symmetric effects. Once depreciations are separated from appreciations of the yuan, those exchange rate changes are shown to have significant effects on the demand for money in China, but in an asymmetric manner. |
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| Keywords: | China money demand asymmetry exchange rate non-linear ARDL approach |
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