Money Demand and the Potential of Seigniorage in China.

Since 1978 China has been experiencing a strong monetary growth. However annual inflation has not exceeded 20%. One of the outcomes has been a high level of seigniorage. This paper looks for the factors that have enabled to collect this quasi-inflation-free revenue and asks the question of whether or not China can still rely on this kind of financing. For this purpose, an augmented Cagan's money demand is specified which takes into account the transitional characteristics of this economy. A Laffer type model is derived from it and provides an analysis of the dynamics of the potential of seigniorage.financial deepening, monetization, money demand, seigniorage, transitional economies, China

Inflation and the Sharing of Macroeconomic Power: A Panel Data Analysis Applied to the Chinese Provinces

Important inflation differences have been existing since 1978 across the Chinese provinces. This paper intends to connect this observation with the literature that emphasises the role of local governments in the process of excess credit supply and inflation in China. A model presents provincial credit growth and inflation as a positive function of the macroeconomic autonomy enjoyed by local authorities. The proposition is supported by a panel-data analysis applied to the Chinese provinces.local policy., credit expansion, inflation, China

Pitfalls of a State-Dominated Financial System: The Case of China

State-owned financial institutions have been proposed as a way to address market failure, but the recent literature has also highlighted their pathological problems. This paper studies the case of China for pitfalls of a state-dominated financial system, including possible segmentation of the internal capital market due to local government interference and mis-allocation of capital. Even without formal legal prohibition to capital movement across regions, we find that capital mobility within China is low. Furthermore, to the extent some capital moves around the country, the government (as opposed to the private sector) tends to allocate capital systematically away from more productive regions toward less productive ones. In this context, a smaller role of the government in the financial sector might increase economic efficiency and the rate of economic growth.