An analysis of money and output in the industrial sector in China

The relationship between monetary aggregates and economic activity is investigated for the Chinese industrial sector for 1980–1988, a period which brackets the process of monetary reform culminating in the establishment of a full-fledged central bank in 1984. Using Granger's definition of causality, Akaike's concept of final prediction error, and Hsaio's sequential testing procedure, we find evidence suggesting that the relationship between money and industrial output may have changed. Whereas, prior to reform, bidirectional causality is detected, after reform unidirectional causality from money to output is established.