Financial liberalization and the stationarity of money multiplier

Darrin Downes, Winston Moore and Dwayne Jackson

International Economic Journal, 2006, vol. 20, issue 2, 227-240

Abstract: In countries without an explicit inflation targeting mechanism, a stable relationship between the monetary base and the money supply allows policymakers to implement changes in monetary policy with a reasonable degree of certainty about the impact on the money supply. The relationship can, however, be influenced by major structural shifts such as financial sector reforms. The present study finds that when structural change bought about by financial liberalisation is ignored, the unit root hypothesis is spuriously accepted. However, once this break is incorporated into the analysis, the multiplier exhibits no presence of a stochastic trend.

Keywords: Money multiplier; financial liberalisation; Caribbean (search for similar items in EconPapers)
Date: 2006
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Citations: View citations in EconPapers (2)

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DOI: 10.1080/10168730600699507

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