ENDOGENEITY OF MONEY SUPPLY: THEORY AND A CASE OF TURKEY

Abstract

Author(s): Y?lmaz AYDIN? Tu?ba DAYIO?LU?? Ay?eg羹l GNER???

In the exogenous money supply approach, money supply is determined independently of the demand for money and the developments in the market. Endogenous money supply approach, developed by Post Keynesian economists, implies that money supply can not be determined independently of the developments in the economy, ie, the production process. The money demand based on the production process should be created by the central bank. In other words, the central bank will provide the necessary reserve for the banks. These reserves affect money supply through monetary base and money multiplier. While the monetary base is determined by the central bank, the parameters that determine the value of the money multiplier vary depending on the preferences of the central bank as well as the banking sector and the household. In the model, the causality relation is deposits from credits of banks and the reserves from deposits. In this study, we analyzed for Turkey money supply is specified as internal or not using central bank datas. Accordingly, the existence of a long-term relationship between the money supply defined as the dependent variable and the amount of the loan determined as the independent variable is analyzed by the Johansen Cointegration Test

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