Money Growth Research Articles

Capital controls, banking competition, and monetary policy

AbstractHow do capital controls and banking concentration affect economic development? This paper develops a general equilibrium model to study these important issues. To do so, we construct a framework with heterogeneous agents and imperfectly competitive financial intermediaries who help depositors manage liquidity risk. Importantly, higher levels of concentration raise the cost of domestic borrowing which increase the reliance on international capital markets. Finally, once the rate of money growth is sufficiently high, capital controls bind and the effects of monetary policy on capital formation are more pronounced.

Monetary policies and economic management: Evidence from Sub-Saharan Africa

Purpose: The objective of this paper is to empirically analyze the application of monetary policies for economic management in Sub-Saharan African countries. The study used time series data from two African countries, specifically Kenya and Rwanda to examine the effect of broad money on the Gross Domestic Product growth rate. Research methodology: The study relied on secondary data; obtained from the World Bank Development Indicators database. The study analyzed the data using both descriptive and inferential statistical techniques. The hypothesis was tested using the Ordinary Least Squares (OLS) technique. The data were checked for normality and subjected to Unit Root tests using the Dickey-Fuller, Augmented Dickey-Fuller and Phillips-Perron text prior to further analysis. Results: The results confirmed the stationarity of the data. The descriptive statistics showed that all variables were normally distributed. The OLS result showed that broad money growth had a positive statistically significant effect on the GDP growth rate of both countries. Limitations: The study focused on two sub-Saharan African countries. Contribution: This study explicates the fact that in order to have a robust financial system, which eventually results in sustainable economic development, solid monetary policies must be maintained. Practical Implication: The implication of this study is the identification of how responsible, long-term fiscal and budgetary stance encourages economic growth. Novelty: The study focuses on the application of monetary policies in the economic management of Sub-Saharan African countries; with a particular emphasis on Kenya and Rwanda. These two countries have recorded remarkable growth in Sub-Saharan Africa compared to other countries.

STATE AND DEVELOPMENT TRENDS OF FINANCIAL INCLUSION IN UKRAINE

Introduction. Financial inclusion in Ukraine is an important component of the country’s economic and social development. It provides availability and access to financial services and products for the entire population, regardless of their social status, financial condition and geographical location. Here are some key aspects of financial inclusion in Ukraine: banking sector, mobile money and electronic payments, development of macro-financial institutions, growth of financial literacy, regulation and protection of consumer rights, reduction of financial vulnerability, increasing role of international cooperation. Financial inclusion in Ukraine is an important factor for increasing the country’s economic well-being and stability. However, there are challenges, such as ensuring access to financial services in rural regions and increasing the level of financial literacy of the population, which require attention and solutions for the further development of this direction. The purpose of the article is to determine the features of the current state of financial inclusion in Ukraine, as well as to present the main trends of its development. Results. The article analyzes the difference between the concepts of “inclusion” and “inclusiveness”, presents their main features and differences, which further makes it possible to dis tinguish between these categories when studying the current state of economic processes. The main trends in the development of financial inclusion in Ukraine are determined based on the trends in the development of financial and economic inclusion in the world. The main features of the current state of economic inclusion in Ukraine are presented. Conclusions. According to the results of the study, it is proven that today, the state of financial inclusion in Ukraine shows a certain progress and expansion of access to financial services. However, there are still certain challenges and tasks that require attention and solutions for the further development of this direction. The main conclusions regarding the state and trends of the development of financial inclusion in Ukraine include the following: growing access to banking services, growth of electronic payments and mobile money, development of macro-financial institutions, focus on improving financial literacy, strengthening cooperation with international organizations. The presented research results make it possible to determine that financial inclusion is an important factor for increasing the economic well-being and stability of Ukraine. The presented trends show some progress in this direction, but it is necessary to continue work to ensure access of all citizens to financial services and further improve financial inclusion in the country.

Effect of Currency Devaluation in Pakistan: A Prospect of Short Term and Long Term

Currency devaluation is a standout amongst the most emotional even awful proportions of financial strategy that a legislature may attempt It generally creates cries of shocks and Sustainable economic growth and development is undoubtly, one of the most challenging development issue, nowadays, in the developing countries Therefore, this study investigates theoretically and empirically the impact of currency devaluation on economic growth of Pakistan The study finds evidence of non-linearity in this relationship and capture that through a smooth transition regression model. Using annual data for the period 1975-2018, employing ARDL bounds test. From an evaluation of the overall analysis and results, it is concluded that foreign exchange reserves have positive and significant short run effect for all the countries. Inflation has negative and significant effect on economic growth of all the countries while real exchange rate has also positive and significant effect on economic growth. The government spending on development has positive and significant effect in short run scenario for all the selected countries while the money growth have positive and negative but significant effect on different countries depending on the political situation and economy based on agrarian product or industrial products. The results of this study confirm the finding of most previous study, since the advent of the exogenous growth theory. The study suggests that all the variables e.g. inflation, foreign exchange reserves, real exchange rate, money growth and government spending could be effectual in these augmenting economies.

Monetary aggregates in the US since 2020 and post-COVID-19 inflation: evidence from the equation of exchange

Starting from Irving Fisher’s equation of exchange ( ) at the basis of the quantity theory of money, we analyze from a theoretical macroeconomic-monetary perspective whether the increase of monetary aggregates M1 and M2 might have affected general prices. Moreover, we investigate why monetary aggregates have evolved differently for COVID-19 than in the global financial crisis (2007-2009). The article elaborates on data for the US from Q1/2020 to Q2/2022 and represents the first scientific contribution to the analysis of post-COVID-19 inflation by means of the equation of exchange. We find that money growth seems to have contributed to inflation supporting the “monetarist” view, but that non-monetary drivers such as supply shocks and increasing profit margins outweigh the monetary ones.

Monetary policy surprises and corporate investment growth in China

This paper analyzes the impact of unexpected changes in Chinese monetary policy on the investment growth of public firms. Previous research on the Chinese economy has not effectively linked firm-level investment determination in corporate finance with monetary policy transmission in macroeconomics, thus limiting our understanding of the characteristics and mechanisms of this effect. We proxy the unexpected monetary policy changes by the M2 growth shocks identified from monetary policy rules. Our results indicate that the change in money growth significantly affects investment growth at the firm level. Positive shocks increase corporate investment growth, whereas negative ones do the opposite. However, the extent of this effect varies over time and gets more substantial under restrictive shocks. Such an effect also differs in magnitude across firms due to firm-level heterogeneous characteristics, highlighting the importance of corporate financial constraints and credit channels of monetary policy transmission.

Macroeconomic Fundamentals and the Volatility of Foreign Investors’ Net Purchase in Korean Stock Market

We employ the GARCH-MIDAS model to examine whether low-frequency macroeconomic variables help to explain the high-frequency volatility of the foreign investors’ net purchase in Korean stock market. The estimation results show that business cycle expansion along with high production growth, high inflation and low unemployment rate predicts high volatility in the near future. Higher interest rate and lower money growth are also likely to lead to higher volatility of foreign investors’ net purchase. We also find that domestic macroeconomic variables, relative to the US variables, have a stronger correlation with the future volatility of foreign investors’ net purchase.

AN ASSESSMENT ON THE MONETARY BUSINESS CYCLE THEORY

In recent years, considerable attention has given to analyzing the business cycle in terms of money. Many researchers have developed dynamic stochastic general equilibrium models that generate business cycle facts and guide for making monetary policy decisions. The aim of this study is to investigate how the persistence of total factor productivity (TFP) and money growth shocks drive the business cycles within an economy. To achieve this aim, we employ a monetary business cycle model with a cash-in-advance constraint, as in Cooley and Hansen (1995). Our results indicate that the volatility of macroeconomic variables is higher when the persistence of TFP shocks is greater compared to that of money growth shocks. Furthermore, TFP shocks seem to have a more significant role in driving variability within the models compared to money growth shocks. This is demonstrated by the higher percentage of variance decomposition attributed to TFP shocks, except in the case of consumption variability.

An Error in the Theory of Seigniorage

The article reveals an error in the theory of seigniorage or government revenue from printing money. Friedman, Cagan, Mankiw, and other economists have repeated the definition of seigniorage as the monetary base multiplied by the rate of inflation (or by the growth in the monetary base). This definition, however, contains a logical error in the formula of seigniorage, confusing the growth rate with the growth rate divided by the growth rate plus one. This often-repeated confusion is consequently common in modern economics textbooks. These many authors have omitted Keynes who – almost one hundred years ago – rightly understood seigniorage to be the monetary base multiplied by the rate of money growth divided by the rate of money growth plus one. This paper presents an unambiguous definition and formula of seigniorage and offers a graphical illustration of seigniorage as a function of monetary growth which corresponds to Keynes’s approach. It is shown that such a graph is an analogy to the Laffer curve in explicit taxation.

Money Growth, Money Velocity and Inflation in the US, 1948–2021

Money Growth, Money Velocity and Inflation in the US, 1948–2021

Financial development and non-resource economic growth: Empirical evidence from Azerbaijan

Most research on financial development and non-resource economic growth presents a wide range and, in some cases, even conflicting results. Evidence from emerging and resource-rich countries may enrich the scientific discourse with new empirical evidence. Therefore, the study aims to assess the mutual impact of financial development and non-resource economic growth in Azerbaijan. The growth rate of real non-oil gross domestic product (GDP), the share of loans in non-oil GDP, and the share of the broad money in GDP were taken as variables for the model. Monthly variable data from 2005–2022 were processed using the unrestricted vector autoregression model. The study’s results did not provide evidence for long-run causality between the finance sector and non-oil growth. But there are short-run and unidirectional causal relationships – from loans to non-oil growth and from broad money to loans. The results also showed that the increase in loans does not support broad money growth. Policymakers are encouraged to increase incentives for lending to the non-oil sector. Supporting money supply growth through increased deposits and non-cash money could also positively impact non-oil growth through loan channels. The development of the securities market could also open up additional financing opportunities for entrepreneurs in the non-oil sector. AcknowledgmentsAcknowledgments are expressed to all the scientists whose works have become a theoretical and methodological foundation for the study. It is also necessary to note the Central Bank of the Republic of Azerbaijan, which provides open access to the use of an extensive information base.

Conditional Political Cycles in Africa: Myth or Reality?

Abstract This study tests for the presence of political cycles in Africa. Through an analysis encompassing data from 30 African nations over the period 1980–2020, we ask whether political incumbents in Africa rely on monetary and fiscal policy variables to improve their reelection prospects. In particular, we test for the existence of ‘conditional political cycles’, namely, we show that both government consumption and money growth go up during an election year, even when we account for critical institutional factors such as government attributes and political regimes. Our findings reveal a noticeable upswing in both government consumption and money growth during election years, a trend that holds consistent even after controlling for key institutional variables. Further exploration, however, unveils that this phenomenon is nuanced, particularly in the case of political monetary cycles; in particular, our analysis shows that when an African country is classified as a democracy during an election year, broad money falls. But although robust institutions can curtail the intensity of political monetary cycles, they do not exert a similar effect on fiscal variables. Finally, we test for the presence of ‘political credit cycles’ and find no empirical evidence that African incumbents manipulate credit markets to bolster their electoral outcomes.

Quantitative easing effectiveness: Evidence from Euro private assets

AbstractProponents of quantitative easing (QE) unconventional policy have rather overstated some evidence that structural time series models do not predict long‐term asset prices and yields as well as naive random walk forecasts, implying that predictions of price reversals cannot be profitable and, therefore, that QE effects are not transitory. Indeed, in this work we present evidence that naive models do not outperform structural vector autoregressive and Markov switching models in out‐of‐sample forecasting of corporate bond yields purchased by the European Central Bank, when the information set includes base money growth. It turns out that structural time series models provide additional information regarding the likelihood of price reversals, thus motivating investors to offset the effects of QE interventions if they perceive unconventional monetary policy regimes as temporary.

Examining Determinants of Regional Inflation Heterogeneity — A Robust Panel Data Analysis

This study examines the impact of different factors on inflation in six regions of the world between 2002 and 2021, analyzing variables such as control of corruption, political stability, broad money growth, GDP growth, and imports to exports ratio. This study seeks to investigate the crucial factors that cause inflation and their significance in different regions. The feasible generalized least square (FGLS) results indicate that the determinants of inflation vary in different regions, but broad money growth consistently increases inflation across all six regions, while control of corruption and political stability reduce inflation in most regions. The study has business implications for political stability and its contribution to inflation control. This should be taken into account when making investment choices by businesses operating in politically insecure regions. The study also highlights how crucial it is to control the growth of broad money and comprehend how GDP growth and inflation are related. Policymakers should establish effective inflation control measures that take into consideration the unique elements driving inflation in their region. JEL Classification: E31, P24, P44

The classical and neoclassical perspectives: A theoretical framework for studying the advent and growth of mobile money—The Tanzanian experience

AbstractThe article addresses the need for comprehensive analytical frameworks or perspectives in mobile money research. It also proposes and develops a conceptual framework utilizing classical and neoclassical perspectives. The interdisciplinary nature of mobile money studies and the need for robust analytical frameworks or perspectives pose a significant challenge to researchers, creating a political‐economic gap in analyzing mobile money. In this case, classical and neoclassical mindsets bridge this gap in mobile money analysis. Moreover, the article also addresses the following research question: How have classical and neoclassical perspectives influenced the emergence and growth of mobile money in Tanzania throughout the past 15 years? The argument posits that implementing and dismantling neoliberal policies have facilitated the introduction and advancement of mobile money, drawing upon classical and neoclassical principles. In‐depth, unstructured interviews and content analysis from relevant and scholarly sources have been used as data collection methods. Thematic analysis has also been used for data analysis. The findings indicate that researchers can rely on classical and neoclassical perspectives to analyze mobile money's advent, growth, and consolidation. The implications are that classical and neoclassical perspectives provide a context and a unit of analysis that can be used to study the political‐economic issues of mobile money and other digital financial innovations.

THE IMPACT OF ECONOMIC TRENDS ON BANK PROFITABILITY – THE CASE OF SERBIA AND CROATIA

This paper analyses the direction and intensity of the impact of economic trends on the profitability of banks in Serbia and Croatia in the period between the years 2006 and 2021. This paper aims to determine which indicators of economic trends have the most substantial impact on the profitability of banks in the selected countries. As key indicators of economic trends, GDP per capita, the GDP growth rate, inflation rate, real interest rate, broad money growth, general government final consumption expenditure, current account balance, gross savings, trade, and unemployment are selected as independent variables. At the same time, bank profitability was measured with bank return on equity, in percentages (ROE), and bank return on assets, in percentages (ROA) – two indicators which represent the dependent variables selected for this research. Descriptive analysis, mean difference, correlation, and univariate and multivariate regression were used in the research. Research results show that changes in real interest rates and unemployment have a significant impact on the profitability of banks in both of the selected countries, while changes in GDP per capita growth have a statistically significant effect only in Serbia, and general government final consumption expenditure has a statistically significant impact only in Croatia. The influence of other indicators of economic trends is not statistically significant.

Demand for Money and Inflation in Ethiopia

One of the vital components of the macroeconomic model that helps policymaking is the demand for money function. Having reliable predictions on the money demand function helps in determining the optimum growth of money supply which is vital in controlling the inflation rate in the economy and also preventing monetary disturbances from affecting real output. In order to formulate and estimate the money demand function in Ethiopia, this study used quarterly data from 2000Q3 to 2021Q2 and employed the Ordinary Least Square method and Engle-Granger two-stage procedure for empirical analysis. The empirical result from the models indicates that, in the long run, all variables (real GDP, CPI inflation, real effective exchange rate, real interest rate and lagged real money balance) are significantly affecting the demand for money in Ethiopia. Whereas, the estimated coefficients of the short-run variable show that the real effective exchange rate, CPI inflation, and lagged real money balance are the main determinants of demand for money while the real GDP and real interest rate are insignificant. Another important finding is that absolute value of the coefficient of the error correction term implies that about 54.2% of the disequilibrium in real money demand is counter-balanced by short-run adjustment in each quarter. The study suggests that in conducting monetary policy, policymakers should consider not only the behavior of income and price but also the movement of exchange rates. The study also calls for appropriate formulation and estimation of the all-encompassing demand for money function that is capable of bringing stability to the growth of money coupled with sustainable economic growth.

Peer-to-Peer Lending as a Determinant of Federal Housing Administration-Insured Mortgages to Meet Sustainable Development Goals

In this paper, we investigate the influential factors of Federal Housing Administration (FHA) mortgage loans, focusing our research interest on peer-to-peer (P2P) lending, the most successful FinTech lending model. We consider P2P lending an alternative source of financing that marginal borrowers use to pay the increased mortgage down payment, making them eligible to receive a mortgage from conventional banks. In other words, we examine whether and to what extent P2P lending has a positive impact on the FHA loans volume by providing the ability to circumvent the loan-to-value (LTV) cap policy. As a result, P2P lending can be seen as a means for ”rationed” borrowers to have access to the market by reducing inequalities and promoting financial inclusion, thus achieving Sustainable Development Goals (SDGs). We employ hand-collected data from FHA mortgages, P2P loans, and other economic factors from all 50 U.S. states during 2007–2017 and use panel data techniques for this purpose. Research shows that P2P lending, GDP per capita, population growth, broad money growth rate, interest rate, unemployment rate, new housing units, and consumer confidence Index produce effects on FHA loans. We show that P2P lending, a nonconventional determinant, is causally associated with a significant increase in the count and volume of FHA loans, implying that P2P lending has a positive impact on them. The ability of P2P to bypass mortgage supply constraints (tightened LTV caps) by providing small loans to borrowers to meet the increased down payment requirements is very important to policy-makers, as it shows that constraining the volume of mortgage loans may be not achieved. Macroprudential tools designed to control credit growth may prove ineffective, as the use of alternative forms of lending helps circumvent them and ultimately leads to excessive household leverage with all the risks that it poses to the financial system.

A note of caution on the relation between money growth and inflation

AbstractWe assess the bivariate relation between money growth and inflation in the euro area and the United States using hybrid time‐varying parameter Bayesian VAR models. Model selection based on marginal likelihoods suggests that the relation is statistically unstable across time in both regions. The effect of money growth on inflation weakened notably after the 1980s before strengthening after 2020. There is evidence that this time variation is related to the pace of price changes, as we find that the maximum impact of money growth on inflation is increasing in the trend level of inflation. These results caution against asserting a simple, time‐invariant relationship when modeling the joint dynamics of monetary aggregates and consumer prices.

Capital flows to developing countries: Implications for monetary policy across the globe

AbstractThe public sectors in many developing countries receive capital inflows from advanced countries. Notably, we show that higher levels of foreign borrowing play an important role in promoting economic activity in developing countries by relieving crowding out problems from local sovereign debt. Moreover, in comparison to previous contributions, we also show how participation affects economic activity in advanced countries. Using a micro‐founded two‐country model of money and banking, we show that there are crowding‐out effects in high income economies when the advanced country funds official foreign debt. Moreover, we find that there are significant implications for the effects of monetary policy when banks in the developed world hold more official foreign debt. In addition, the typical destructive effects of money growth in developing countries are weaker in the presence of higher levels of international borrowing. By comparison, the effects of monetary stimulus in the advanced country become more pronounced as banks hold more foreign bonds. Our analysis concludes by looking at optimal debt policy. Interestingly, the results suggest that developing countries should limit their reliance on foreign capital inflows.