Money Growth Rate Research Articles

Democratic (crypto-)currency issuance

Can democratic currency issuance lead to welfare-optimal results/stable currency values? We explore (crypto-)currency issuance with flexible majority rules. With flexible majority rules, the vote-share needed to approve a particular currency issuance growth is increasing with this growth rate. By choosing suitable flexible majority rules, socially optimal growth rates can be achieved in simple settings. By adding a communication stage, in which agents can reveal their preferences for currency growth, the voting process can be ended in three rounds. With other procedures, one could even obtain the first-best solution in one voting round. Finally, we show that optimal money growth rates are realized if agents entering financial contracts anticipate ensuing inflation rates determined by these flexible majority rules.

On monetary growth and inflation in leading economies, 2021–22: Relative prices and the overall price level

AbstractFor most of the period since China started to reform and open its economy, falling goods prices in developed economies have been offset by rising service prices, but as a result of the COVID‐19 pandemic these relative price trends have been temporarily reversed. Separately from these relative price changes, the 2021–22 episode of inflation reflects broad money growth rates in many economies around the world since the start of the pandemic. The economies that are predicted to experience the greatest increase in inflation are those where monetary growth has increased most relative to the requirements to finance normal economic growth and the normal increase in demand for money balances (the inverse of income velocity).

Monetary policy in a world of radical uncertainty

Monetary policy in a world of radical uncertainty

Does the growth of military hard power back up the growth of monetary soft power via data-driven probabilistic optimal relations?

The research of how economic growth and military expenses affect each other could be found in the literature, but a comprehensive quantitative study of the degree of interaction between military expenses and money currency is not fully investigated. In this study, we borrow the concepts of hard power and soft power and quantify these concepts by associating military hard power with military expenses over GDP and monetary soft power with growth rate of exchange rate over growth rate of broad money from 1961 to 2019. We study the causal relation between these two powers by mathematical and statistical approaches. We keep track of the time-series of Hausdorff distances between their empirical optimal relations and absolute linear relations and analyse their stability. The absolute linear relations serve as the benchmark for measuring the causality between military hard power and monetary soft power, while the empirical optimal relations reveal their actual interaction. Our result shows there is a clear causal relation that military hard power backs up monetary soft power, but not the other way around. This indicates that proper military spending over GDP would stabilise and promote the currency value of a country.

A reconsideration of money growth rules

A New Keynesian model, estimated using Bayesian methods over a sample period that includes the 2009-15 episode of zero nominal interest rates, illustrates the effects of replacing the Federal Reserve’s historical policy of interest rate management with one targeting money growth instead. Counterfactual simulations show that a rule for adjusting the money growth rate, modestly and gradually, in response to changes in the output gap delivers performance comparable to the estimated interest rate rule in stabilizing output and inflation. The simulations also reveal that, under the same money growth rule, the US economy would have recovered more quickly from the 2007-9 recession, with a much shorter period of exceptionally low interest rates. These results suggest that money growth rules can serve as simple but useful guides for monetary policy and eliminate concerns about monetary policy effectiveness when the zero lower bound constraint is binding.

Monetarist arithmetic at COVID‐19 time: A take on how not to misapply the quantity theory of money

AbstractThe COVID‐19 crisis has revived an old heated debate on whether significant increases in the money supply ultimately lead to higher inflation. Some observers have alluded to the quantity theory of money for that purpose, though in our view, this has sometimes been in a misleading way. Against this background, this paper seeks to clarify several aspects of the quantity theory of money, which are useful to apply it fairly in the current world. First, we review the meaning of the velocity term in the quantity equation. We argue that it has no relevance as a behavioural concept: there is no such thing as a 'desired velocity'. Rather, income velocity should be seen as a variable deriving from a system of parameters and variables related to money demand, as the monetarist approach clearly puts it, with no intrinsic relevance. Second, we clarify the practical relevance that the quantity theory approach can bear in the 21st century. Third, we review the channels and assumptions underlying the asserted quantity theory link between money growth and inflation. In light of our analysis, we conclude that the high money growth rates seen since the pandemic outbreak are unlikely to translate into higher inflation rates.

The Impact of Money Supply on the Economy: A Panel Study on Selected Countries

This study investigates the impact of money supply on economic growth rate, inflation rate, exchange rate and real interest rate. We used a panel of 217 countries from 1960 to 2020 and four different models to address these questions. The empirical results support the quantity theory of money. In addition, the study found evidence for a negative relationship between real interest rate and inflation and between money supply and real interest rate. Finally, our results show that lagged money growth rate is positively correlated with GDP growth rate but money growth rate is negatively correlated with GDP growth rate.

THE FRIEDMAN RULE: EXPERIMENTAL EVIDENCE

AbstractWe evaluate the Friedman rule for optimal monetary policy in a laboratory economy based on Lagos–Wright (Journal of Economic Theory 145 (2010), 1508–24). We explore two implementations of Friedman's rule: one involving deflationary monetary policy and another where interest is paid on money. We compare the welfare consequences of the Friedman rule with two other policies: a constant money supply regime and a regime where the money supply grows at a constant k%. Counter to theory, we find that the Friedman rule is not welfare‐improving, performing no better than the constant money regime. By one welfare measure, the k% money growth rate regime performs best.

Monetary theory reversed: Virtual currency issuance and the inflation tax

This study develops a monetary model featuring (i) ‘virtual’ goods, sold against virtual currency, and (ii) agents providing payment services (miners), remunerated with newly issued virtual currency. Virtual money growth may have effects opposite to those predicted by monetary theory. Declining virtual currency issuance, like in Bitcoin, raises the price of virtual goods, which counteracts the traditional impact of a reduced inflation tax. The paper also shows that welfare improves as virtual currency issuance decreases, but only if the virtual currency growth rate is sufficiently larger than the fiat money growth rate.

Monetary policy effectiveness in the liquidity trap: a switching regimes approach

Liquidity trap economics seems to have fared particularly well on all counts of its predictions, in the aftermath of the 2008 global financial crisis. Therefore, in this paper we evaluate formally the effectiveness of unconventional monetary policy in a liquidity trap, based on data from Japan, the USA, and the eurozone over periods of liquidity trap conditions (1994–2018 for Japan and 2009–2018 for the USA and the eurozone). Under effective unconventional policies, changes in the base money-growth regime should be associated with similar regime changes in either inflation or investment expenditure growth and the estimation of a switching regimes model allows us to test whether significant joint regime shifts occur in the data. Also, a test of liquidity trap conditions is based on a discrepancy of regime shifts between growth rates of base money and broad money, since this implies a collapse of the money multiplier. Our findings show that drastic shifts in the growth rate of the monetary base do not produce similar behavior for the inflation rate, investment expenditure growth, and broad money growth, thus pointing to liquidity trap conditions and unconventional monetary policy ineffectiveness.

Money and inflation in inflation-targeting regimes – new evidence from time–frequency analysis

ABSTRACT This article investigates the post-1990 link between broad money growth and inflation in 16 full-fledged inflation-targeting regimes and four benchmark non-inflation-targeting regimes. This study employs the Christiano-Fitzgerald band-pass filter and continuous wavelet transform to analyze the co-movements across operational horizons and time. According to the band-pass filtering techniques, the link between money growth and inflation was weak and statistically nonsignificant over the investigated period: from 1990 onwards. The wavelet analysis demonstrated significant causality running from money growth to inflation, and strong significant co-movements between the two variables around the Great Recession at a typical business cycle frequency. This finding suggests that policymakers may need to respond to the short-run surges in money growth by reducing money growth rates. The empirical findings support the proposal that policymakers should return to a monetary framework that controls the money supply.

Macroeconomic instability and targeting rules for monetary policy in an endogenously growing small open economy

AbstractBy using the feature that money can lower unit transaction costs, this paper develops a monetary endogenous growth model for a one‐sector small open economy, and uses it to examine the possibility of the occurrence of belief‐driven fluctuations. It is found that the emergence of belief‐driven fluctuations is crucially related to targeting rules for monetary policy. More specifically, when the monetary authorities target the specific money growth rate, macroeconomic instability generated by belief‐driven fluctuations can arise even if labor externalities are totally absent. This finding runs in sharp contrast to the Benhabib–Farmer assertion needed for the occurrence of belief‐driven fluctuations. It is also found that, when the monetary authorities target the specific inflation rate, macroeconomic instability generated by belief‐driven fluctuations can never prevail regardless of the extent of the unit transaction costs.

A century and a half of the monetary base-stock market relationship

Using the longest spanning monthly data ever studied in the empirical literature, dating back to 1870, we investigate the relationship between the money supply and the stock market in the United Kingdom. In the context of bivariate and multivariate structural generalized autoregressive conditional heteroskedasticity (GARCH)-in-Mean VAR models, we document that increased money growth volatility has significant negative effects on the stock market. Our results are broadly consistent with the empirical literature and provide conclusive evidence that increased uncertainty about the growth rate of money, has a negative and statistically significant effect on economic activity. Also, accounting for money growth uncertainty, we find that an unanticipated increase (decrease) in money growth leads to fall (rise) in the unemployment rate and the interest rate and to a rise (fall) in share prices.

A Study on Factors Affecting the Non-performing Loans in Chinese Commercial Banks

본 연구의 목적은 중국 상업은행의 부실대출에 영향을 미치는 요인을 도출하고자 한다. 중국은 이미 세계경제 2위로 도달하였으며 한국의 최대 무역 수출국이 되었다. 따라서 중국 은행업의 부실대출에 양향을 미치는 요인들을 연구함으로서 중국 경제와 밀접한 관계가 있는 한국기업들에게도 중국 상업은행의 리스크 관리 행태를 이해하는데 도움이 될 것이다. 본 연구에서는 중국 상업은행의 부실대출에 영향을 미치는 요인을 거시경제 변수와 미시경제 변수로 분석하였다. 거시적 영향 요인에는 주로 중국국내총생산증가율(GDPR), 화폐공급증가율(M2R), 미시적 영향 요인에는 주로 예대비율(LDR), 자기자본비율(CAR), 상업은행재테크발행규모(WMP), 기업경기지수(BCI)를 고려하였다. 연구 결과는 ①총생산증가율이 부실대출과 플러스 관계로 나타났고, ②화폐공급증가율이 은행의 부실대출율이 마이너스 관계이며 장기적으로 균형으로 나타났다. ③예대비율은 대출액과 예금액의 비례한다. ④상업은행의 자기지본비율과 부실대출율이 마이너스 관계이다. ⑤상업은행의 재테크발행규모가 확대되면서 은행의 부실대출도 늘어나게 되고 플러스 관계가 볼 수 있다. ⑥기업경기지수는 기업의 경영상황과 수익능력을 반영하고 부실대출율이 마이너스 관계를 나타낸다. 분석 결과에 따라 중국은행업은 부실대출의 관리수준을 제고해야 하며 은행마다 자체의 특징과 더불어 경제정책의 환경 속에서 효과적인 리스크 관리 방안을 세워야 할 것이다.As time goes on, China has become a populous country and the world’s second largest economy. The stable development of China s economy has become a concern of China, where the banking industry plays a remarkable role in China. Under the new economic situation, the phenomenon of Non-performing Loans in Chinese Commercial Banks has become increasingly serious with the development of China’s economy. Therefore, in this context, it is of great significance to analyze the factors which affect the Non-performing Loans of Chinese Commercial Banks. Research model selected the data of 7 factors in the quarter from 2011 to 2019, where USES VAR model was used for empirical analysis, and chose all Chinese Commercial Banks Non-performing Loans, China s gross domestic product (GDP) growth rate, Broad money(M2) growth rate of China, the LDR of Chinese commercial bank, the capital adequacy ratio of Chinese Commercial Bank, the wealth management products of Chinese Commercial Bank, China s business climate index as variables, using VAR model to analyze the impact of these seven variables on the bank Non-performing Loans. According to the theoretical analysis and empirical analysis, six factors affect the Non-performing Loan Ratio of China s Commercial Banks. Based on the obtained results it indicates that China s economy is growing, whereas bubble economy exists. Therefore, Banks need to strengthen their internal manngement.

Inflation: The Next Threat?

The policy reaction to the COVID-19 pandemic will increase budget deficits massively in the world’s leading countries. The deficits will largely be monetised, with heavy state borrowing from both national central banks and commercial banks. The monetisation of budget deficits, combined with official support for emergency bank lending to cash-strained corporates, is leading to extremely high growth rates of the quantity of money. The crisis has shown again that, under fiat monetary systems, the state can create as much as money as it wants. By mid- or late 2021, the pandemic should be under control, and a big bounce-back in aggregate demand and output is to be envisaged. The extremely high growth rates of money observed will instigate an inflationary boom. The scale of the boom will be conditioned by the speed of money growth in the rest of 2020 and in early 2021. Central banks seem heedless of the inflation risks inherent in monetary financing of the growing government deficits. Following the so-called "New Keynesian Model" consensus, their economists ignore changes in the quantity of money and consider monetary policy defined exclusively by interest rates, with a narrow focus on the central bank policy rate, long-term interest rates, and the yield curve. The quantity theory of money today provides a theoretical framework, which relates trends in money growth to changes in inflation and nominal GDP over the medium and long terms. A condition for the return of inflation to current target levels is that the rate of money growth is reduced back towards annual rates of increase of about 6% or less.

The Effects of High-Powered Money Growth and Reserve Rate Policy in the Model with Money Creation and Interbank Settlement

The Effects of High-Powered Money Growth and Reserve Rate Policy in the Model with Money Creation and Interbank Settlement

Effectiveness of Macroprudential Policies under Maturity Mismatch

ABSTRACT This paper studies the role of reserve requirements as a macroprudential policy tool in China. In a factor-augmented vector autoregression of China, we find that banking system works as a shock absorber. To explain this “financial attenuator” effect, we extend an otherwise standard New-Keynesian model including (i) a banking sector with financial frictions with households, (ii) a credit in multi-period contracts, (iii) a central bank that conducts monetary policy by adjusting the nominal interest rate in response to the money-growth rate, and (iv) the reserve requirement (RR) as a macroprudential policy instrument. The quantitative analysis of the estimated model shows that the presence of a maturity mismatch makes a bank’s leverage less procyclical, which offsets the effects of financial frictions and makes the bank’s balance sheet function as a shock absorber. Our analysis also suggests that countercyclical RR adjustment can enhance welfare compared to fixed an RR ratio in the presence of a maturity mismatch but faces important implementation challenges. In particular, an RR policy countercyclically responding to bank lending can effectively stabilize the economy but increase financial fragility, as the “credit attenuator” effect stemming from the maturity mismatch will be offset by this policy.

Impact of Monetary Policy on the Economic Growth of a Developing Country: An Empirical Study on Bangladesh Economy

Monetary policy plays a significant role in the economic growth of a developing country like Bangladesh by influencing the cost and availability of credit, inflation control and balance of payment. The current improving GDP growth of Bangladesh is the contribution of different components of monetary policy. This paper aims at identifying the impact of monetary policy on the overall economic development of Bangladesh. The purpose of the study is to develop a cause and effect relationship between the monetary policy and different economic factors that lead to economic growth of Bangladesh. To conduct this research data of last 20 years from 1997-2017 were collected. Primary data from 57 respondents from different commercial banks were collected to conduct this study. Different economic variables that affects a country’s GDP such as- inflation rate, employment rate, lending rate, borrowing rate, export-import growth rate, broad money growth rate, FDI rate in percent of GDP were used for this study. Both descriptive and inferential statistics were used in analyzing the data. Multivariate analysis technique like Exploratory factor analysis using SPSS version 20.0 was performed to identify the factors that influence the overall economic performance of Bangladesh. Multiple regressions were run to identify the relationship between monetary policy and the economic development of Bangladesh. The results show that factors like consumption, investment, government net expenditure and net export significantly affects the GDP growth of Bangladesh. The study also identifies that the monetary policy of Bangladesh has significant impact on these mediating factors. The research brings an important insight regarding the socio-economic development of Bangladesh by ensuring proper implication of the monetary policy. If the central bank and policy makers focus on the above significant factors Bangladesh will see more robust economic growth in the near future.

Inflation Targeting in Iran

Inflation targeting in various forms has been adopted by a number of countries as a framework for making monetary policy more coherent and transparent and for increasing the credibility of monetary policy. Despite the language, referring to inflation target as the primary objective of monetary policy, central bankers always make room for short-run stabilization objectives, particularly with respect to output and exchange rate. Inflation targeting, in most cases, reduces the role of intermediate targets, such as exchange rate or money growth rate.
 Experience of other countries that have adopted inflation targeting as a monetary framework reveals that the success of the policy depends on not only the transparency of the operation but also on the budgetary discipline. Indeed, the central banks that have become more transparent, more independent, more coherent, and more accountable and more credible have been more successful.
 The controversy among economists on the expenses of inflation targeting has attained particular attention during the past decades .While opponents believe that inflation targeting takes place at the expense of output shortfalls (Cechetti and Ehrmann 1999), proponents (Mishkin 2000, Jonas and Mishkin 2003) believe that inflation targeting promotes investment and economic growth. This paper tries to address the question of whether the performance of inflation targeting in Iran has been successful. Based on a monetary model, using exogenous variables such as official exchange rate, budget deficit, foreign exchange obligation account, and balance of payments, the results suggest that the effects of inflation targeting on the real output is trivial, supporting the natural rate hypothesis.

The Impact of Exchange Rate on Inflation: A Case Study of The Gambia(1978-2016)

This paper focuses on developing stylized facts about the inflationary process in The Gambia, focusing particularly on the relationship between the exchange rate regime and the sources of inflation. It also examines several variables which policymakers believed have affected the level of inflation in The Gambia. The type of data used in this paper includes the time series data set which is collected from the period 1978-2016. Augmented Dickey-Fuller (ADF) test is used to examine whether a variable is integrated of which was proposed by Dickey and Fuller (1979). This paper employed the order of integration to test for stationarity and it was found out that both inflation and interest rates were stationary at levels. On the other hand, exchange rate and GDP were non-stationary at levels. In addition, Johansen co-integration test is used to explore the presence of a long-run relationship among the series. Findings show that there is no long-run relationship between the variable exchange rate and Inflation. Using annual data from 1978-2016, it was found that money growth and exchange rate change factors typically related to fiscal influences are far more important in countries with floating exchange rate regimes than in those with fixed exchange rates. Mitigating inflation has been a top agenda for every country that wants to achieve sustainable economic growth in which The Gambia is no exception. More especially, The Gambia being a small open economy exposed to other countries and price shifts in the world economy have a direct impact on The Gambian economy.