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The Endogeneity of Money: Evidence from the G7

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  • Howells, Peter
  • Hussein, Khaled

Abstract

Economists have frequently argued that the money supply is endogenously determined. However, monetary regimes differ in important institutional respects and it may be that endogeneity may be true for some regimes and not for others. This paper tests for endogeneity of money supply in the G7 countries by using recently developed techniques to test for loan-deposit causality. The authors' findings suggest that broad money is generally endogenous. However, there is often evidence of two-way causality which suggests to them that the ability of loan demand to create deposits is not unconstrained by the demand for those deposits, as is sometimes suggested. Copyright 1998 by Scottish Economic Society.

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  • Howells, Peter & Hussein, Khaled, 1998. "The Endogeneity of Money: Evidence from the G7," Scottish Journal of Political Economy, Scottish Economic Society, vol. 45(3), pages 329-340, August.
  • Handle: RePEc:bla:scotjp:v:45:y:1998:i:3:p:329-40
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    Cited by:

    1. Badarudin, Z.E. & Ariff, M. & Khalid, A.M., 2013. "Post-Keynesian money endogeneity evidence in G-7 economies," Journal of International Money and Finance, Elsevier, vol. 33(C), pages 146-162.
    2. Trunin, P. & Vashchelyuk, N., 2015. "The Analysis of Money Supply Endogeneity in Russia," Journal of the New Economic Association, New Economic Association, vol. 25(1), pages 103-131.
    3. Raghbendra Jha & Deba Prasad Rath, 2001. "On the Endogeneity of the Money Multiplier in India," ASARC Working Papers 2001-12, The Australian National University, Australia South Asia Research Centre.
    4. repec:kap:iaecre:v:7:y:2001:i:2:p:253-258 is not listed on IDEAS
    5. Peter Howells & Iris Mariscal, 2006. "Monetary Policy Regimes. A Fragile Consensus," International Journal of Political Economy, Taylor & Francis Journals, pages 62-83.
    6. Tas, Bedri Kamil Onur & Togay, Selahattin, 2012. "A direct test of the endogeneity of money: Implications for Gulf Cooperation Council (GCC) countries," Economic Modelling, Elsevier, vol. 29(3), pages 577-585.
    7. Levrero, Enrico Sergio & Deleidi, Matteo, 2017. "The money creation process: A theoretical and empirical analysis for the US," MPRA Paper 81970, University Library of Munich, Germany.
    8. repec:spr:jecfin:v:41:y:2017:i:2:d:10.1007_s12197-015-9350-6 is not listed on IDEAS
    9. Kevin Greenidge & Roland Craigwell & Darrin Downes, 2001. "Can money endogeneity be generalized? Empirical evidence from Caribbean economies," International Advances in Economic Research, Springer;International Atlantic Economic Society, pages 253-258.
    10. repec:mes:postke:v:23:y:2000:i:2:p:313-329 is not listed on IDEAS
    11. Yannis Panagopoulos & Aristotelis Spiliotis, 2006. "Testing Money Supply Endogeneity: The Case of Greece (1975-1998)," European Research Studies Journal, European Research Studies Journal, pages 85-102.
    12. Vymyatnina, Yulia, 2006. "How much control does Bank of Russia have over money supply?," Research in International Business and Finance, Elsevier, pages 131-144.
    13. Kevin S. Nell, 1999. "The Endogenous/Exogenous Nature of South Africa's Money Supply Under Direct and Indirect Monetary Control Measures," Studies in Economics 9912, School of Economics, University of Kent.
    14. Louis-Philippe Rochon & Sergio Rossi, 2013. "Endogenous money: the evolutionary versus revolutionary views," Review of Keynesian Economics, Edward Elgar Publishing, vol. 1(2), pages 210-229, January.
    15. Boermans, Martijn Adriaan & Moore, Basil J, 2008. "Locked-in and Sticky Textbooks: Mainstream Teaching of the Money Supply Process," MPRA Paper 14845, University Library of Munich, Germany, revised Apr 2009.
    16. Kevin S. Nell, 1999. "The Relation Between Money, Income and Prices in South Africa," Studies in Economics 9909, School of Economics, University of Kent.

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