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Savings, commodity market rationing and the real rate of interest in China (English)

This paper uses an intertemporal, disequilibrium framework to analyze the rapid increase in personal savings that has taken place in China since 1979. A theoretical model of savings behavior under rationing is developed, and a specification of a "virtual" price index is derived. The virtual price index is then used to estimate certain savings functions, and is found to explain the data better than official price indices. When savings are allowed to depend on real interest rates, defined in terms of the virtual price index, a negative and significant interest rate effect on consumption is found. Using official prices these results no longer hold.

Details

  • Author

    Feltenstein, Andrew; Lebow, David; van Wijinbergen, Sweder

  • Document Date

    1987/01/01

  • Document Type

    Departmental Working Paper

  • Report Number

    DRD243

  • Volume No

    1

  • Total Volume(s)

    1

  • Country

    China,

  • Region

    East Asia and Pacific,

  • Disclosure Date

    2013/06/06

  • Disclosure Status

    Disclosed

  • Doc Name

    Savings, commodity market rationing and the real rate of interest in China

  • Keywords

    real interest rate;price level;permanent income;nominal interest rate;deposit money;consumer need;average rate of inflation;sale of treasury bills;high real interest rate;nominal rate of interest;income velocity of money;price index;saving behavior;household saving;currency in circulation;demand for money;real disposable income;permanent income model;net private savings;form of saving;elasticity of consumption;centrally planned economy;log likelihood function;public sector budget;demand for bank;economic policy research;interest rate effect;permanent income hypothesis;government budget constraint;propensity to save;method of estimation;interest rate determination;level of consumption;effect on consumption;stock of money;consumer price index;cambridge university press;balance of payment;current disposable income;short term loan;goods market;commodity market;future price;government expenditure;regime shift;retail sale;monetary aggregate;discount factor;savings deposit;current income;market clearing;price control;economic reform;inflation rate;Macroeconomic Policy;absolute income;demand function;saving function;theoretical model;transitory income;future market;alternative asset;interest sensitivity;discount value;disequilibrium model;open economy;future expenditure;money stock;current expenditure;observable variable;substitution effect;t-bill rate;economic liberalization;lagged dependent;monetary base;parameter estimate;savings propensity;advance constraint;real income;consumption response;monetary expansion;national income;empirical measure;Research Support;learning model;economics study;indirect channel;income variable;white noise;nominal income;regime change;savings increase;distributed lag;consumption decline;publishing house;Political Economy;price rise;imf staff;trading partner;inflationary pressure;consumer market;household behavior;fixed investment;consumption behavior;independent variable;estimation technique;current consumption;empirical specification;savings pattern;empirical analysis;estimation result;institutional change;monetary policy;consumer loan;reserve requirement;money balance;money market;real rate;capital accumulation;effective price;real consumption;empirical work;economic history;functional form;expenditure share;relative price;explanatory variable;empirical application;basic model;consumer behavior;expenditure function;utility level;transitory components;domestic credit;banking sector;credit policy;rural population;social purchasing;cash plan;financial asset;cash balance;investment fund;monetary implication;bank deposit;wage determination;Credit policies;price system;dramatic change;Socialist countries;simple model;future consumption;goods demand;classical theory;consumption demand;econometric technique;money demand;demand schedule;0 hypothesis;economic research;Economic Studies;rural saving;oil price;interest elasticity;positive value;economic study;individual bank;

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Citation

Feltenstein, Andrew; Lebow, David; van Wijinbergen, Sweder

Savings, commodity market rationing and the real rate of interest in China (English). Development Research Department discussion paper ; no. DRD 243 Washington, D.C. : World Bank Group. http://documents.worldbank.org/curated/en/825281468212987224/Savings-commodity-market-rationing-and-the-real-rate-of-interest-in-China