Money and Price Level Determination in China

The quantity theory of money provides a useful starting point in explaining the price level in China. The ratio of money supply to real output is an important variable in explaining the price level, but the elasticity is below unity, suggesting that velocity is not constant. A short-run model for changes in the price level explains the Chinese annual data from 1952 to 1983 better than the United States data from 1922 to 1953. This model is stable after 1979 and forecasts well in 1984. J. Comp. Econ. September 1987, 11(3), pp. 319–333. Princeton University, Princeton, New Jersey 08544.