Savings, Commodity Market Rationing, and the Real Rate of Interest in China.

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. Copyright 1990 by Ohio State University Press.