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On the Endogeneity of the Money Multiplier in India

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  • Raghbendra Jha

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  • Deba Prasad Rath

Abstract

Citing a break in the statistical association between the broader money aggregates and reserve money in the the post-reforms period of the 1990s vis-a-vis the 1980s, this paper argues that an endogenous money multiplier framework is best suited for analyzing the money supply process in India and questions the simplifying assumptions tending to justify stability and predictability of the money multiplier especially in the context of a deregulated financial system with market determined interest rates. An empirical analysis conducted using monthly data for the period April 1980 through March 2000 establishes this and traces the source of the endogeneity of these multipliers to a range of macroeconomic variables.

Suggested Citation

  • 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.
  • Handle: RePEc:pas:asarcc:2001-12
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    File URL: https://crawford.anu.edu.au/acde/asarc/pdf/papers/2001/WP2001_12.pdf
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    References listed on IDEAS

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    1. Basil J. Moore, 1988. "The Endogenous Money Supply," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 10(3), pages 372-385, March.
    2. Johannes, James M & Rasche, Robert H, 1981. "Can the Reserves Approach to Monetary Control Really Work?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 13(3), pages 298-313, August.
    3. Gauger, Jean, 1998. "Economic Impacts on the Money Supply Process," Journal of Macroeconomics, Elsevier, vol. 20(3), pages 553-577, July.
    4. Freeman, Donald G., 1998. "Do core inflation measures help forecast inflation?," Economics Letters, Elsevier, vol. 58(2), pages 143-147, February.
    5. Manchester, Joyce, 1989. "How Money Affects Real Output," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 21(1), pages 16-32, February.
    6. Davis, George C & Gauger, Jean, 1996. "Measuring Substitution in Monetary-Asset Demand Systems," Journal of Business & Economic Statistics, American Statistical Association, vol. 14(2), pages 203-208, April.
    7. Freeman, Scott & Huffman, Gregory W, 1991. "Inside Money, Output, and Causality," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 32(3), pages 645-667, August.
    8. 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.
    9. Johannes, James M. & Rasche, Robert H., 1979. "Predicting the money multiplier," Journal of Monetary Economics, Elsevier, vol. 5(3), pages 301-325, July.
    10. Gauger, Jean & Black, Harold A, 1991. "Asset Substitution and Monetary Volatility," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 23(4), pages 677-691, November.
    11. Ireland, Peter N, 1994. "Money and Growth: An Alternative Approach," American Economic Review, American Economic Association, vol. 84(1), pages 47-65, March.
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    Cited by:

    1. Ouyang, Alice Y. & Rajan, Ramkishen S. & Willett, Thomas D., 2010. "China as a reserve sink: The evidence from offset and sterilization coefficients," Journal of International Money and Finance, Elsevier, vol. 29(5), pages 951-972, September.
    2. Alice Ouyang & Ramkishen Rajan & Tom Willett, 2008. "Managing the Monetary Consequences of Reserve Accumulation in Emerging Asia," Global Economic Review, Taylor & Francis Journals, vol. 37(2), pages 171-199.
    3. Ho Dong Ching, 2011. "Endogenous Money - A Structural Model of Monetary Base," Occasional Papers, South East Asian Central Banks (SEACEN) Research and Training Centre, number occ52, April.

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