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Endogeneity of Indonesian money supply

Author

Listed:
  • Meutia Safrina Rachma

    (Pusat Pengkajian Ekonomi, Yogyakarta)

Abstract

There has been a long debate about the endogeneity of money supply. The main objective of this article is to identify whether money supply in Indonesia is an exogenous or an endogenous variable. Using a Vector Autoregressive model and monthly data 1997(5)-2010(6), the estimation result shows that money supply in Indonesia is an endogenous variable. The movement of broad money supply does influence the movement of base money and Consumer Price Index. Consequently, the central bank does not have control power on money supply. The bank is only able to maintain the stability and control the movement of broad money supply.

Suggested Citation

  • Meutia Safrina Rachma, 2010. "Endogeneity of Indonesian money supply," Economic Journal of Emerging Markets, Universitas Islam Indonesia, vol. 2(3), pages 277-288, April.
    • Handle: RePEc:uii:journl:v:2:y:2010:i:3:p:277-288
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    References listed on IDEAS

    as
    1. Bala Shanmugam & Mahendhiran Nair & Ong Wee Li, 2003. "The endogenous money hypothesis: empirical evidence from Malaysia (1985-2000)," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 25(4), pages 599-611.
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    4. Giorgio E. Primiceri, 2005. "Time Varying Structural Vector Autoregressions and Monetary Policy," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 72(3), pages 821-852.
    5. Thomas I. Palley, 2002. "Endogenous Money: What it is and Why it Matters," Metroeconomica, Wiley Blackwell, vol. 53(2), pages 152-180, May.
    6. Tuck Cheong Tang, 2007. "Money demand function for Southeast Asian countries," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 34(6), pages 476-496, November.
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    More about this item

    Keywords

    Endogenous variable; money supply; vector autoregression;
    All these keywords.

    JEL classification:

    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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