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The dynamics of money supply determination under asset purchase programs: A market-based versus a bank-based financial system

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  • Wang, Ling

Abstract

This paper proposes a new analytical framework incorporating asset prices and bank credit to investigate the determination of the money supply. Based on multivariate time-series analyses, this paper provides the first evidence that central bank asset purchases, asset prices and bank credit are closely linked to the money supply. Strong evidence of clear differences in the dynamics of money supply determination between the U.S. and Japan has also been found. Firstly, the asset purchases of the Federal Reserve tend to increase the money supply to a greater degree. Secondly, dynamic interactions between asset prices and the money supply are stronger in the U.S. And thirdly, bank credit is more essential to the determination of the money supply in Japan. These findings provide new insights into how financial structure influences the transmission mechanism of unconventional monetary policy.

Suggested Citation

  • Wang, Ling, 2022. "The dynamics of money supply determination under asset purchase programs: A market-based versus a bank-based financial system," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 79(C).
    • Handle: RePEc:eee:intfin:v:79:y:2022:i:c:s1042443122000750
    DOI: 10.1016/j.intfin.2022.101593
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    Cited by:

    1. Kyriazis, Nikolaos & Papadamou, Stephanos & Tzeremes, Panayiotis & Corbet, Shaen, 2024. "Examining spillovers and connectedness among commodities, inflation, and uncertainty: A quantile-VAR framework," Energy Economics, Elsevier, vol. 133(C).
    2. Wang, Ling, 2023. "Central bank asset purchases, banks’ risky security holdings and profitability: Macro and micro evidence from Japan and the U.S," International Review of Economics & Finance, Elsevier, vol. 87(C), pages 347-364.

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    More about this item

    Keywords

    Money supply determination; Asset purchases; Asset prices; Bank credit; Financial structure;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • 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
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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