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How Much Control Dose Central Bank of Iran over Money Supply?

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  • Jafar HAGHIGHAT

    (Department of Economics, University of Tabriz, Tabriz, Iran)

Abstract

In discussions about the efficacy of monetary policy instruments, attention is often focused on analyzing the money supply process. Monetarists, in general, argue that the monetary authorities can exercise effective control over the stock of money; others, especially those who share the new view of monetary theory argue that the determination of the stock of money is part of the economy. In this view, the stock of money is the outgrowth of the behavior of the public, the financial sector (banks), the finance ministry, and the rest of the world as well as of the actions of the central bank. The paper investigated the co-integrating property and stability of the supply of money function in Iran. The paper employed the ARDL approach together with CUSUM and CUSUMSQ tests. The results show that M1 and M2 is cointegrated with net claims on the government, net foreign assets, and rate of profit on bank deposit (interest rate and a major implication of using interest rate elasticity estimates from M2 function is that money is endogenous.

Suggested Citation

  • Jafar HAGHIGHAT, 2011. "How Much Control Dose Central Bank of Iran over Money Supply?," Journal of Knowledge Management, Economics and Information Technology, ScientificPapers.org, vol. 1(7), pages 1-29, December.
    • Handle: RePEc:spp:jkmeit:1225
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    References listed on IDEAS

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    Cited by:

    1. Jafar Haghighat & Tanaz Salahesh, 2016. "The role of money multiplier in monetary transmission mechanism in Iran (bank lending and money supply)," International Journal of Monetary Economics and Finance, Inderscience Enterprises Ltd, vol. 9(2), pages 212-223.

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