Post-Keynesian money endogeneity evidence in G-7 economies

Z.E. Badarudin, Mohamed Ariff () and Ahmed Khalid

Journal of International Money and Finance, 2013, vol. 33, issue C, 146-162

Abstract: Post-Keynesian theory of money endogeneity emphasizes the importance of bank loans causing money supply changes. Thus, the proponents of endogenous money supply assert banks create money by meeting money demands of economic agents. Money is said to originate as bank-created loans from deposits, which in turn create more loans under the endogenous money supply. The traditional money supply theory asserts that deposits create money, so money is exogenously created. This paper provides new evidence on endogenous money supply across G-7 economies over 26 years using quarterly data with controls for monetary regime change effects. Bank loans cause money supply, hence money is endogenous and the monetary regime effect appears to hold as crucial factors in money supply theory. Money supply behavior is exogenous during two short periods in the UK and the US when monetary targeting policies were in place.

Keywords: Post-Keynesian; Money supply; Money endogeneity; G-7 countries; Trivariate VAR; Granger causality (search for similar items in EconPapers)
JEL-codes: C32 E12 E42 E52 G21 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (19)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0261560612002045
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:33:y:2013:i:c:p:146-162

DOI: 10.1016/j.jimonfin.2012.11.014

Access Statistics for this article

Journal of International Money and Finance is currently edited by J. R. Lothian

More articles in Journal of International Money and Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().