Testing Endogeneity of Money Supply in Developing Countries using Panel VAR Method

Öz

This study examines the endogeneity of the money supply in 67 developing countries from 2001 to 2023. Countries are classified into three groups based on the World Bank’s income classification. Using a Panel Vector Autoregressive (PVAR) model and the Granger causality test, the relationships between price level, real GDP, broad money supply, bank loans, and the monetary base are analyzed. Impulse-Response Functions and Forecast-Error Variance Decomposition are used to assess dynamic effects. Findings indicate that the money supply is endogenous and expands through bank lending. The results support the Liquidity Preference view, providing key insights for the design of monetary policy in developing economies.

Anahtar Kelimeler

• Endogenous Money
• Panel VAR
• Panel Granger Causality
• Developing Countries
• Monetary Policy

Gelişmekte Olan Ülkelerde Para Arzının İçselliğinin Panel VAR Yöntemi ile Test Edilmesi

Öz

Bu çalışma, 2001'den 2023'e kadar 67 gelişmekte olan ülkede para arzının içselliğini incelemektedir. Ülkeler Dünya Bankası'nın gelir sınıflandırmasına göre üç gruba ayrılmıştır. Panel Vektör Otoregresif (PVAR) modeli ve Granger nedensellik testi kullanılarak fiyat düzeyi, reel GSYİH, geniş para arzı, banka kredileri ve parasal taban arasındaki ilişkiler analiz edilmiştir. Dinamik etkileri değerlendirmek için Etki-Tepki Fonksiyonları ve Öngörü-Hata Varyans Ayrıştırması kullanılmıştır. Bulgular, para arzının içsel olduğunu ve banka kredileri yoluyla genişlediğini göstermektedir. Sonuçlar Likidite Tercihi görüşünü desteklemekte ve gelişmekte olan ekonomilerde para politikasının tasarımı için önemli bilgiler sağlamaktadır. Translated with DeepL.com (free version)

Anahtar Kelimeler

• İçsel Para Teorisi
• Panel VAR
• Panel Granger Nedensellik Testi
• Gelişmekte Olan Ülkeler
• Para Politikası

Kaynakça

1. Abrigo, M. R., & Love , I. (2016). Estimation of Panel Vector Autoregression in Stata. The Stata Journal, 16(3), 778-804.
2. Ahmad, N., & Ahmed, F. (2006). “The Long-Run and Short-Run Endogeneity of Money Supply in Pakistan: An Empirical Investigation". State Bank of Pakistan Research Bulletin, 2(1), pp. 267-278.
3. Almutair, S. (2015). The Endogenous Money Hypothesis: an Empirical Study of The Saudi Arabia. International Journal of Social Science and Economics Invention (IJSSEI), 1(3), 1-18.
4. Andrews, D. W., & Lu, B. (2001, March). Consistent Model and Moment Selection Procedures for GMM Estimation with Application to Dynamic Panel Data Models. Journal of Econometrics, 101(1), 123-164. doi:https://doi.org/10.1016/S0304-4076(00)00077-4
5. Arellano, M., & Bond , S. (1991). Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations. The Review of Economic Studies, 58(2), 277-297. doi:https://doi.org/10.2307/2297968
6. Arellano, M., & Bover, O. (1995). Another Look at the Instrumental Variable Estimation of Error-Components Models. Journal of Econometrics, 68(1), 29-51. doi:https://doi.org/10.1016/0304-4076(94)01642-D
7. Arestis, P. (1987-1988). The Credit Segment of a UK Post-Keynesian Model. Journal of Post Keynesian Economics, 10(2), 250-269.
8. Arestis, P., & Mariscal, I.-F. (1995). The Endogenous Money Stock: Empirical Observations from the United Kingdom. Journal of Post Keynesian Economics, 17(4), 545-559.

9. Badarudin, Z., Khalid, A., & Ariff, M. (2009). "Money supply behaviour in emerging economies: a comparative analysis". Journal of the Asia Pacific Economy, Taylor & Francis Journals, 14(4), pp. 331-350. doi:10.1080/13547860903169324
10. Baştav, L. (2021). "Endogenous Money Supply: Turkish Economy (2011-2018)". Fiscaoeconomia, 5(2), pp. 595-610. doi:doi.org/10.25295/fsecon.891839
11. Blundell, R., & Bond, S. (1998). Initial Conditions and Moment Restrictions in Dynamic Panel Data Models. Journal of Econometrics, 87(1), 115-143. doi:https://doi.org/10.1016/S0304-4076(98)00009-8
12. Canova, F., & Ciccarelli, M. (2013, January). Panel Vector Autoregressive Models: A Survey. European Central Bank-Working Paper Series(1507), 1-55.
13. Carvalho, F. (1995). Post-Keynesian Developments of Liquidity Preference Theory. In P. Wells (Ed.), Post-Keynesian Economic Theory (pp. 17-33). Boston: Kluwer Academic Publishers.
14. Cepni, O., & Güney, E. (2017). "Endogeneity of money supply: Evidence from Turkey”,. International Journal of Finance & Banking Studies 2147-4486, 6(1), pp. 1-10. doi:10.20525/ijfbs.v6i1.680
15. Christophe, S. M. (2022). The endogenous money hypothesis: empirical evidence from the CEMAC area (1990-2017). Journal of Post Keynesian Economics, 45(1), pp. 73-99. doi:doi.org/10.1080/01603477.2020.1835493
16. Cifter, A., & Ozun., A. (2007). “The Monetary Transmission Mechanism in the New Economy: Evidence from Turkey (1997-2006). South East European Journal of Economics and Business, 2(1), pp. 15-24. doi:https://doi.org/10.2478/v10033-007-0011-3
17. Deleidi, M., & Levrero, E. S. (2019). The money creation process: A theoretical and empirical analysis for the United States. Metroeconomica, 70(4), 552-586. doi:https://doi.org/10.1111/meca.12238
18. Gavrovska, M. M., & Slaveski, T. (2019). The Long-Run and Short-Run Endogeneity of Money Supply in the Republic of Macedonia: An Empirical Analysis. International Conference on Eurasian Economies (pp. 71-83). Macedonia: Avekon.
19. Greendige, K., Craigwell, R., & Downess, D. (2001). Can Money Endogeniety be Generalized? Empirical Evidence from Caribbean Economics? International Advances in Economic Research, 7(2), 253-258.
20. Haghighat, J. (2012). “The endogenous money in Iran: What it is and why it matters”. International Journal of Trade, Economics and Finance, 3(2). doi:10.7763/IJTEF.2012.V3.177
21. Hamilton, J. D. (1994). Times Series Analysis. New Jersey, Princeton: Princeton University Press.
22. Holtz-Eakin, D., Newey, W., & Rosen , H. (1988). Estimating Vector Autoregressions with Panel Data. Econometrica, 56(6), 1371-1395. Retrieved from http://links.jstor.org/sici?sici=0012-9682%2819881 ... O%3B2-V&origin=repec
23. Howells, P. (1999). The Source of Endogenous Money. Economic Issues, 4(1), 1-12.
24. Howells, P. (2005). The Endogeneity of Money: Empirical Evidence. Department of Accounting, Economics and Finance, Bristol Business School, University of the West of England(Working Papers 0513), 1-31.
25. Howells, P. G. (1998). “The Endogeneity of Money: Evidence from G7". 45(3), 329-340. doi:10.1111/1467-9485.
26. IMF. (2023). World Economic Outlook-A Rocky Recovery. Washington, DC: International Monetary Fund. Retrieved from https://www.imf.org/en/Publications/WEO/Issues/2023/04/11/world-economic-outlook-april-2023
27. IMF. (2024). IMF DATA-Access to Macroeconomic & Financial Data. Retrieved from International Financial Statistics (IFS): https://data.imf.org/?sk=4c514d48-b6ba-49ed-8ab9-52b0c1a0179b
28. İsik, S., & Kahyaoğlu, H. (2011). “The Endogenous Money Hypothesis: Some Evidence from Turkey (1987-2007)”. 9, pp. 61-71.
29. Işık, S., Alkın, H., & Uluğ, M. (2018). Avrupa Birliği Üyesi 13 Ülkede Post-Keynesyen Para Arzının İçselliği Hipotezinin Test Edilmesi. KAfkas Üniversitesi İktisadi ve İdari Bilimler Fakültesi Dergisi, 9(17), 1-20.
30. Kaldor, N. (1982). The Scourge of Monetarism. New York: Oxford University Press.
31. Kotarski, K., & Deskar-Skrbic, M. (2016). Transcending the new macroeconomic orthodoxy in the Eurozone: a Post-Keynesian view. Zbornik Radova Ekonomskog Fakulteta U Rijeci, 34(2), 419-441. doi: https://doi.org/10.18045/zbefri.2016.2.419
32. Köksel, B. (2016). "Türkiye Ekonomisinde Para Arzının İçselliği: 2006-2014 Dönemi Üzerine Bir Uygulama". Ataturk University Journal of Economics & Administrative Sciences, 30(2), pp. 455-471.
33. Lavoie, M. (1985). Credit and Money: The Dynamic Circuit, Overdraft Economics, and Post-Keynesian Economics, Recent Economic Thought Money and Macro Policy. In M. Jarsulic (Ed.). Lavoie, M. (1992). Foundations of Post Keynesian Economics. Edward Elgar Publishing Company.
34. Lavoie, M. (1996, August). Horisontalism, Structuralism, Liquidity Preference and the Principle of Increasing Risk. Scottish Journal of Political Economy, 3(43), pp. 275-299.
35. Lavoie, M. (2005). Monetary base endogeneity and the new procedures of the asset-based Canadian and American monetary systems. Journal of Post Keynesian Economics, 27(4), 689-709. doi:10.1080/01603477.2005.11051462
36. Lopreite, M. (2014). The Endogenous Money Hypothesis: An Empirical Study of the Euro Area (1999-2010). Journal of Knowledge Management, Economics and Information Technology, 4(4), 1-23.
37. Love, I., & Zicchino, L. (2006). Financial Development and Dynamic Investment Behavior: Evidence from Panel VAR. The Quarterly Review of Economics and Finance, 46, 190-210. doi:10.1016/j.qref.2005.11.007
38. Maddala, G. S., & Wu, S. (1999, November). A Comparative Study of Unit Root Tests with Panel Data and a New Simple Test. Oxford Bulletin of Economics and Statistics, 61(S1), 631-652. doi: https://doi.org/10.1111/1468-0084.0610s1631
39. Moore, B. J. (1988). Horizontalists and Verticalists The Macroeconomics of Credit Money. Cambridge University Press.
40. Moore, B. J. (1998). Accommodation to Accommodationism: A note. Journal of Post Keynesian Economics, pp. 175-179.
41. Moore, B., & Stuttman, S. L. (1982). "A causality analysis of the determinants of money growth". British Review of Economic Issues, 6(1), pp. 1-25.
42. Mueller, P., & Wojnilower, J. (2016). The Endogenous Money Hypothesis – Empirical Evidence from the United States (1959-2008). SSRN, 1-31. Retrieved from https://ssrn.com/abstract=2355178 or http://dx.doi.org/10.2139/ssrn.2355178
43. Nayan S., K. N. (2013). “Post Keynesian endogeneity of money supply: Panel evidence”. Procedia Economics and Finance(7), pp. 48-54. doi:doi.org/10.1016/S2212-5671(13)00217-7
44. Nell, K. S. (2000). “The Endogenous/Exogenous Nature of South Africa’s Money Supply under Direct and Indirect Monetary Control Measures". Journal of Post Keynesian Economics, 23 (2), pp. 313-329. doi:doi.org/10.1080/01603477.2000.11490283
45. Özden, O., Bolkol, H. K., & Demirel, B. (2023). The endogenous money hypothesis: empirical evidence from Türkiye (2008-2020). PSL Quarterly Review,, pp. 23-57.
46. Palley, T. (1994). “Competing Views of the Money Supply.”. Metroeconomica, 45(1), pp. 67-88. doi: https://doi.org/10.1111/j.1467-999X.1994.tb00013.x
47. Palley, T. (2013). Horizontalists, verticalists, and structuralists: The theory of endogenous money reassessed. Macroeconomic Policy Institute, pp. 1-33.
48. Palley, T. (2017). The theory of endogenous money and LM schedule: prelude to a reconstruction of ISLM. Revista de Economia Politica(37), pp. 3-22.
49. Panagopoulos, Y., & Spiliotis, A. (1998). The Determinants of Commercial Banks' Lending Behavior: Some Evidence for Greece. Journal of Post Keynesian Economics, 20(4), 649-672. Retrieved from http://www.jstor.org/stable/4538605 .
50. Park, W. (2023). "Two theories of endogenous money: an empirical study of Korea". Journal of Post Keynesian Economics, 46(2), pp. 303-333. doi:doi.org/10.1080/01603477.2023.2170248
51. Pesaran, H. M. (2004). General Diagnostic Tests for Cross Section Dependence in Panels. Cambridge Working Papers in Economics, 1-41.
52. Pesaran, M. H. (2007). A Simple Panel Unit Root Test in the Presence of Cross-Section Dependence. Journal of Applied Econometrics, 22(2), 265-312. doi: 10.1002/jae.951
53. Pollin, R. (1991, Spring). Two Theories of Money Supply Endogeneity: Some Empirical Evidence. Journal of Post Keynesian Economics, 3(13), pp. 366-396.
54. Ponomarenko, A. A. (2016). A Note on Money Creation in Emerging Market Economies. BOFIT Discussion Paper(4/2016), 1-23. Retrieved from https://ssrn.com/abstract=2749576
55. Rousseas, S. (1985). A Markup Theory of Bank Loan Rates,. Journal of Post Keynesian Economics, 1(8), pp. 135-144.
56. Shanmugam, B., Nair, M., & Li, O. W. (2003). The endogenous money hypothesis: empirical evidence from Malaysia (1985-2000). Journal of Post-Keynesian Economics, 25(4), 599-611. doi:https://doi.org/10.1080/01603477.2003.11051378
57. Sliwinski, P. (2023). Endogenous money supply, global liquidity and financial transactions: Panel evidence from OECD countries. Equilibrium. Quarterly Journal of Economics and Economic Policy, 18(1), 121-152. doi:doi: 10.24136/eq.2023.004
58. Tas, B. K., & Togay, S. (2012). A direct test of the endogeneity of money: Implications for Gulf Cooperation Council (GCC) countries. Economic Modelling, 29(3), 577-585. doi:https://doi.org/10.1016/j.econmod.2011.12.015
59. Vera, A. P. (2001). “The Endogenous Money Hypothesis: Some Evidence from Spain (1987-1998)". Journal of Post Keynesian Economics, 23(3), pp. 509-526. doi:doi.org/10.1080/01603477.2001.11490296
60. Vera, L., Guijarro, J. C., & Perez, B. (2022). Testing the Global Extent of the Endogenous-Money Hypothesis: A Panel Vector Autoregression Approach. Review of Keynesian Economics, 10(3), 316-347.
61. Vymyatnina, Y. (2006). “How much control does Bank of Russia have over money supply?”. Research in International Business and Finance, 20(2), pp. 131-144. doi:doi.org/10.1016/j.ribaf.2005.09.010
62. WB. (2024). DataBank-World Development Indicators. Retrieved from DataBank-World Development Indicators: https://databank.worldbank.org/source/world-development-indicators
63. WB. (2024). World Bank Country Classifications by Income Level for 2024-2025. Retrieved from World Bank: https://blogs.worldbank.org/en/opendata/world-bank-country-classifications-by-income-level-for-2024-2025
64. Wray, R. (1990). Money and Credit in Capitalist Economics: The Endogenous Money Approach. Edward Elgar.
65. Wray, R. (2007, September). Endogenous Money: Structuralist and Horizontalist. The Levy Economics Institute of Bard College, pp. 1-21.
66. Wray, R. (2012). Introduction to an Alternative History of Money. Levy Economics Institute.