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Modeling Endogenous Monetary Stock Behavior. A Simultaneous Transfer Function Approach

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  • Singh, H

Abstract

A structural model of demand and supply of money for the U.S. economy is estimated by the relatively new Simultaneous Transfer Function Method. This approach is motivated by (1) a need to impose valid identifying restrictions on the model and (2) to facilitate a systematic specification search process. The endogeneity of monetary stock is effectively dealt with at two levels. Policy-wise endogeneity is handled by defining the money supply variable as a ratio of observed and exogenous monetary stock (based on reserves supplied by the Fed). Statistical endogeneity is captured in a Simultaneous Equations System. Empirical results show that commercial banks are able to alter observed monetary stock behavior when the profitability of creating new loans (deposits) increases. This accommodation is, expectedly, fairly small and instantaneous.

Suggested Citation

  • Singh, H, 1989. "Modeling Endogenous Monetary Stock Behavior. A Simultaneous Transfer Function Approach," Empirical Economics, Springer, vol. 14(4), pages 291-305.
    • Handle: RePEc:spr:empeco:v:14:y:1989:i:4:p:291-305
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