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Cagan Effect and the Money Demand by Firms in China: A Nonlinear Panel Smooth Transition Approach

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DOI: 10.4236/jmf.2015.52014    2,753 Downloads   3,250 Views   Citations


This paper examines the Cagan effect in China by using a panel smooth transition approach on the firm-level data. Our results reveal that the demand for money by firms relatively decreases for the high inflation period, because the firm anticipates further price increase that it seeks a substitute for money, supporting the presence of the Cagan effect in firms in China. A policy implication of our finding is that efficiently managing Inflation Expectation is necessary in China in stimulating the economy through expansion of the money supply.

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The authors declare no conflicts of interest.

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Peng, F. , Zhan, K. and Lian, Y. (2015) Cagan Effect and the Money Demand by Firms in China: A Nonlinear Panel Smooth Transition Approach. Journal of Mathematical Finance, 5, 153-156. doi: 10.4236/jmf.2015.52014.


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