Modelling Money Demand and Supply in China: Dealing with a Small Sample Size

Abstract

Monetary policy is important to a market economy. It therefore becomes important to RCPEs when central planning is increasingly replaced by market mechanisms. Chapter 1 implied that monetary control can be both possible and successful in a CPE when implemented directly by planners from both the demand side (wage control) and the supply side (credit planning). Chapters 2 and 4 showed, however, that once decentralisation reforms have taken place, control is questionable. Chapters 3 and 5 argued from a theoretical point of view that market mechanisms, typically interest rate mechanisms, may not be so reliable during transition and therefore monetary control has to be implemented from both the demand side and the supply side by all possible means.

That which has been proved by tests cannot be undermined. However, that which has been proved by theoretical studies cannot be established as a theory if it has not been proved by tests (Professor Ding Zhao-zhong, winner of the Nobel Prize for Physics, translated from his original Chinese speech in Nanjing, 5 July 1992).