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Endogenous Money in the Age of Financial Liberalization

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  • Gökçer Özgür
  • Korkut A. Ertürk

Abstract

The paper reports results that show a much weakened statistical relationship between total bank credit, total deposits and the broad money supply for the period after 1995 for the US, where no statistical causation can be discerned in either direction. This has been the result of the changing nature of the credit creation process where banks have acquired almost total independence from required reserves and core deposits in extending credit, and even an ability to circumvent the constraint posed by capital requirements through asset securitization, giving rise to an explosive increase in nonbank intermediation. As a result, the expansion of bank credit did not result in a commensurate increase of bank deposits because financial intermediation spilled over to nondepository institutions, and with the growing importance of nonbank deposits in M3, broad money supply became broader than banks total deposits.

Suggested Citation

  • Gökçer Özgür & Korkut A. Ertürk, 2008. "Endogenous Money in the Age of Financial Liberalization," Working Paper Series, Department of Economics, University of Utah 2008_06, University of Utah, Department of Economics.
    • Handle: RePEc:uta:papers:2008_06
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    File URL: http://economics.utah.edu/research/publications/2008_06.pdf
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    References listed on IDEAS

    as
    1. Bank for International Settlements, 2005. "The role of ratings in structured finance: issues and implications," CGFS Papers, Bank for International Settlements, number 23, december.
    2. Jan Kregel, 2007. "The Natural Instability of Financial Markets," Economics Working Paper Archive wp_523, Levy Economics Institute.
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    Cited by:

    1. Sinha, Pankaj & Dutta, Dipanwita, 2011. "Modelling profitability of Indian banks," MPRA Paper 31156, University Library of Munich, Germany.

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    More about this item

    Keywords

    Endogenous Supply of Money; Broad Money; Financial Intermediation; Asset Securitization;
    All these keywords.

    JEL classification:

    • B22 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Macroeconomics
    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers

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