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The Endogeneity of Money: Evidence from the G7

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  • Peter Howells
  • Khaled Hussein

Abstract

For many years economists have argued that the money supply is endogenously determined. However, it has often been suggested that monetary regimes differ in important institutional respects and it may be that endogeneity may be true for some regimes and not for others. The aim of this paper is to test for endogeneity of money supply in the G7 countries and also to detect the existence of any interaction between the demand for bank lending and the demand for money by using recently developed techniques of causality tests. Our findings suggest that broad money is endogenous. However, the ability of the demand for loans to cause deposits is not, it seems, unconstrained by the demand for those deposits. Agents do not simply absorb whatever flow of new deposits loans might create.

Suggested Citation

  • Peter Howells & Khaled Hussein, 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:329-340
    DOI: 10.1111/1467-9485.00099
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    Cited by:

    1. 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.
    2. Wasanthi Thenuwara & Bryan Morgan, 2017. "Monetary targeting in Sri Lanka: how much control does the central bank have over the money supply?," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 41(2), pages 276-296, April.
    3. Yulia Vymyatnina, 2013. "Money Supply and Monetary Policy in Russia: A Post-Keynesian Approach Revisited," EUSP Department of Economics Working Paper Series Ec-04/13, European University at St. Petersburg, Department of Economics.
    4. I. Biefang-Frisancho Mariscal & P.G.A. Howells, 2012. "Income velocity and non-GDP transactions in the UK," International Review of Applied Economics, Taylor & Francis Journals, vol. 26(1), pages 97-110, March.
    5. Ismet Gocer & Serdar Ongar, 2020. "Re-Examining the Stability of Money Multiplier for the US: The Nonlinear ARDL Model," South-Eastern Europe Journal of Economics, Association of Economic Universities of South and Eastern Europe and the Black Sea Region, vol. 18(1), pages 101-113.
    6. Yannis Panagopoulos & Aristotelis Spiliotis, 2006. "Testing Money Supply Endogeneity: The Case of Greece (1975-1998)," European Research Studies Journal, European Research Studies Journal, vol. 0(1-2), pages 85-102.
    7. Kevin S. Nell, 2000. "The Endogenous/Exogenous Nature of South Africa’s Money Supply Under Direct and Indirect Monetary Control Measures," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 23(2), pages 313-329, December.
    8. Kevin S. Nell, 1999. "The Relation Between Money, Income and Prices in South Africa," Studies in Economics 9909, School of Economics, University of Kent.
    9. 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.
    10. Z. E. Badarudin & M. Ariff & A. M. Khalid, 2011. "Money supply endogeneity and bank stock returns," Applied Financial Economics, Taylor & Francis Journals, vol. 21(14), pages 1035-1048.
    11. Rahimi , Azadeh, 2019. "The Endogenous or Exogenous Nature of Money Supply: Case of Iran," Journal of Money and Economy, Monetary and Banking Research Institute, Central Bank of the Islamic Republic of Iran, vol. 14(1), pages 27-40, January.
    12. Peter Howells, 2005. "The Endogeneity of Money: Empirical Evidence," Working Papers 0513, Department of Accounting, Economics and Finance, Bristol Business School, University of the West of England, Bristol.
    13. 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.
    14. 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, vol. 7(2), pages 253-258, May.
    15. Yulia Vymyatnina, 2013. "Money Supply and Monetary Policy in Russia: A Post-Keynesian Approach Revisited," EUSP Department of Economics Working Paper Series 2013/04, European University at St. Petersburg, Department of Economics.
    16. 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.
    17. Vymyatnina, Yulia, 2006. "How much control does Bank of Russia have over money supply?," Research in International Business and Finance, Elsevier, vol. 20(2), pages 131-144, June.
    18. Jiranyakul, Komain, 2019. "Does the Bank of Thailand have the control over the money supply?," MPRA Paper 94932, University Library of Munich, Germany.

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