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Revisiting the Stability of Money Multiplier on Determination of Money Supply: Evidence from Canada

Author

Listed:
  • Serdar Ongan

    (St. Mary's College of Maryland)

  • Ismet Gocer

    (Adnan Menderes University)

Abstract

This study revisits the stability of the money multiplier on the determination of the money supply process for Canada under the assumption of potential nonlinear relation between the money supply (M1 and M2) and monetary base. To this aim, we apply the recently developed nonlinear autoregressive distributed lag (ARDL) model by Shin et al. (2014) between 2000M1-2018M09. This model decomposes the monetary base series into increases and decreases separately. The main empirical findings of this study indicate that the nonlinear model successfully detects potentially concealed proportional nonlinear (asymmetric) relations between monetary base and money supply (M1). Additionally, increases in monetary base have strong proportional relation with M1. This implies an almost stable money multiplier and exogenous money supply determination process for the Bank of Canada (BoC). This can be interpreted that the BoC determines money supply exogenously only its expansionary monetary policy in the long-run. This finding may allow the BoC to apply more proactive and manageable monetary policy.

Suggested Citation

  • Serdar Ongan & Ismet Gocer, 2019. "Revisiting the Stability of Money Multiplier on Determination of Money Supply: Evidence from Canada," Economics Bulletin, AccessEcon, vol. 39(2), pages 1621-1628.
    • Handle: RePEc:ebl:ecbull:eb-19-00311
    as

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    File URL: http://www.accessecon.com/Pubs/EB/2019/Volume39/EB-19-V39-I2-P152.pdf
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    References listed on IDEAS

    as
    1. M. Hashem Pesaran & Yongcheol Shin & Richard J. Smith, 2001. "Bounds testing approaches to the analysis of level relationships," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(3), pages 289-326.
    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. Nayan, Sabri & Ahmad, Mahyudin & Kadir, Norsiah & Abdullah, Mat Saad, 2013. "Post Keynesian Endogeneity of Money Supply: Panel Evidence," MPRA Paper 48716, University Library of Munich, Germany.
    4. 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.
    5. repec:bla:scotjp:v:45:y:1998:i:3:p:329-40 is not listed on IDEAS
    6. Karl Brunner & Allan H. Meltzer, 1964. "Some Further Investigations Of Demand And Supply Functions For Money," Journal of Finance, American Finance Association, vol. 19(2), pages 240-283, May.
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    Cited by:

    1. 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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    More about this item

    Keywords

    Stability of Money Multiplier; Nonlinear ARDL; Canada.;
    All these keywords.

    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • G2 - Financial Economics - - Financial Institutions and Services

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