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The endogeneity of money: Evidence from the G7

By P. Howells and Khaled A. Hussein


For many years economists have argued that the money supply is endogenously determined, However, it has often been suggested that monetary regimes differ in important institutional respects and it may be that endogeneity may be true for some regimes and not for others. The aim of this paper is to test for endogeneity of money supply in the G7 countries and also to detect the existence of any interaction between the demand for bank lending and the demand for money by using recently developed techniques of causality tests. Our findings suggest that broad money is endogenous. However, the ability of the demand for loans' to cause deposits is not, it seems, unconstrained by the demand for those deposits. Agents do not simply absorb whatever flow of new deposits loans might create

Topics: JA
Publisher: Blackwell publ LTD
Year: 1998
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