Endogenous Money Supply and Money Demand

Woon Gyu Choi and Seonghwan Oh

No 2000/188, IMF Working Papers from International Monetary Fund

Abstract: This paper explores the behavior of money demand by explicitly accounting for the money supply endogeneity arising from endogenous monetary policy and financial innovations. Our theoretical analysis indicates that money supply factors matter in the money demand function when the money supply partially responds to money demand. Our empirical results with U.S. data provide strong evidence for the relevance of the policy stance to the demand for MI under a regime in which monetary policy is substantially endogenous. Specifically, we find that tighter monetary policy has substantial positive impacts on money demand under the recent Federal funds rate targeting.

Keywords: WP; funds rate; monetary policy; money stock; financial service; Money Demand; Money Supply Endogeneity; Financial Innovation; Monetary Policy Stance; money holding; first-half-period money demand; money demand function; money supply factor; Demand for money; Monetary base; Monetary tightening; Vector autoregression (search for similar items in EconPapers)
Pages: 35
Date: 2000-11-01
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Citations: View citations in EconPapers (3)

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