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Money Multiplier under Reserve Option Mechanism

Author

Listed:
  • Akturk, Halit
  • Gocen, Hasan
  • Duran, Suleyman

Abstract

This paper introduces a generalized money (M2) multiplier formula to the literature for a monetary system with Reserve Option Mechanism (ROM). Various features of the proposed multiplier are then explored using monthly Turkish data during the decade 2005 to 2015. We report a step increase in the magnitude and a slight upward adjustment in the long-run trend of the multiplier with the adoption of ROM. We provide evidence for substantial change in the seasonal pattern of the multiplier, cash ratio, required and excess reserves under ROM. We show that money (M2) multiplier is less volatile in a monetary system with ROM and discuss the subsequent stabilizing influence of more predictable multiplier on the foreign exchange market.

Suggested Citation

  • Akturk, Halit & Gocen, Hasan & Duran, Suleyman, 2015. "Money Multiplier under Reserve Option Mechanism," MPRA Paper 64803, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:64803
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    References listed on IDEAS

    as
    1. Koray Alper & Mahir Binici & Selva Demiralp & Hakan Kara & Pinar Ozlu, 2014. "Reserve Requirements, Liquidity Risk and Credit Growth," Working Papers 1424, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
    2. Pablo Federico & Carlos A. Vegh & Guillermo Vuletin, 2014. "Reserve Requirement Policy over the Business Cycle," IMES Discussion Paper Series 14-E-06, Institute for Monetary and Economic Studies, Bank of Japan.
    3. Arif Oduncu & Yasin Akcelik & Ergun Ermisoglu, 2013. "Reserve Options Mechanism and FX Volatility," Working Papers 1303, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
    4. Oguz Arslaner & Ugur Ciplak & Hakan Kara & Doruk Kucuksarac, 2015. "Reserve Option Mechanism : Does It Work As An Automatic Stablizer?," Central Bank Review, Research and Monetary Policy Department, Central Bank of the Republic of Turkey, vol. 15(1), pages 1-18.
    5. Koray Alper & Hakan Kara & Mehmet Yorukoglu, 2013. "Reserve Options Mechanism," Central Bank Review, Research and Monetary Policy Department, Central Bank of the Republic of Turkey, vol. 13(1), pages 1-14.
    6. Jayaratne, Jith & Morgan, Donald P, 2000. "Capital Market Frictions and Deposit Constraints at Banks," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 32(1), pages 74-92, February.
    7. Değerli, Ahmet & Fendoğlu, Salih, 2015. "Reserve option mechanism as a stabilizing policy tool: Evidence from exchange rate expectations," International Review of Economics & Finance, Elsevier, vol. 35(C), pages 166-179.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Money multiplier; macroprudential policy; reserve option mechanism; reserve requirements; financial stability;
    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
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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