An Empirical Analysis on Money, Price Level and Output in China——Based on ECM and VAR Model

摘要

This paper studies on the question as to whether the effects of money on price and output and whether the relation between inflation and the ratio of money supply and output remains the same after economic reform. Following a monetary history of the Chinese macro-economy, an error correction model to explain the relationship between inflation and money supply from 1952 to 2007 passes the Chow test in spite of economic reform. A VAR model to explain the logs of price level, output and money supply proves that output reacts to money supply first before price but the effect of price lasts much longer than output.