Money Stock, Monetary Base and Bank Behavior in Germany, Geldmenge, Geldbasis und Bankenverhalten in Deutschland
AbstractThis paper contributes to the analysis of the money supply process in Germany during the period of monetary targeting by the Bundesbank from 1975-1998. While the standard money multiplier approach assumes that the money stock is determined by the money multiplier and the monetary base it is argued here that both the money stock and the monetary base are determined endogenously by the optimizing behavior of commercial banks and private agents like households and firms. An industrial organization style model for the money creating sector that describes the money creation process is developed assuming that the main policy variable of the central bank is the money market interest rate. A vector error correction model for the nominal money stock, the monetary base, nominal income, short-term and long-term interest rates, and the required reserve rate is specified, and the interaction between these variables is analyzed empirically. The evidence contradicts the money multiplier approach and supports the presented model of the money creating sector.
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Bibliographic InfoArticle provided by Justus-Liebig University Giessen, Department of Statistics and Economics in its journal Journal of Economics and Statistics.
Volume (Year): 223 (2003)
Issue (Month): 3 (May)
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Industrial organization approach to banking theory; money multiplier; endogenous money; vector error correction model;
Find related papers by JEL classification:
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
- E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
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