Economic and Monetary Uncertainty and the Demand for Money in China

Output uncertainty and monetary uncertainty are said to affect the quantity of money demanded in every country. Increases in both measures of uncertainty could induce people to allocate different proportions of their wealth between money and other financial or real assets. We test these hypotheses by using data from China. Empirical results show that both measures of uncertainty have short-run effects on the quantity of money demanded. However, short-run effects do not last into the long term. Similar results were found for the United States in previous research.