Insurance Business and the Demand for Money: Empirical Evidence from China

According to the Keynesian theory of monetary demand, combining with the reality of China, we consider that the insurance market will affect the monetary demand through several direct effects and indirect effects, and analyze the transmission mechanism to monetary demand by each of these factors. Based on the quarterly data from 2000 to 2011, this paper will analyze the quantity of monetary demand by the influence of insurance industry with VAR models, and comes to the conclusion that the growth of premium income has a positive impact on monetary demand. We proposed that Central bank must increase money supply and pay a proper attention to insurance market in monetary policy-making, and they need to take insurance factors, including structure of insurance product and the scale of insurance business, into those monetary demand indicators, to decrease the influence caused by insurance cycle and enhance the efficiency of the monetary policy.