"Savings, Commodity Market Rationing, and the Real Rate of Interest in China"
Posted: 26 Apr 2006
We explain the rapid increase in personal savings in China since the economic liberalization which began in 1979. We use an intertemporal disequilibrium framework based upon a virtual price technique. The virtual price is defined as the price level that would induce the observed level of consumption in the absence of price controls. We find that normalizing savings by virtual prices explains savings behavior better than does normalizing by official price series. We then provide a test which suggests that rationing was perceived to be termporary. Using virtual prices, we find a negative and significant real interest rate effct on consumption. Finally, we find that the nominal interest rate has been important in influencing savings behavior in China.
Keywords: China, rationing, repressed inflation, interest rates
JEL Classification: E21,O23, P22
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