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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

ABSTRACT

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.

Conflicts of Interest

The authors declare no conflicts of interest.

Cite this paper

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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