Money Growth Rate Research Articles

Money growth and inflation rate: evidence from Angola from 2014 to 2023

Money growth and inflation rate: evidence from Angola from 2014 to 2023

Central Bank Independence, Inflation and Money Growth: Evidence from South Africa

Purpose: This article evaluates the impact of the de jure independence of the South African Reserve Bank (SARB) on the credibility and discipline of domestic monetary policy. Credibility captures the extent to which economic agents trust the SARB to pursue its price stability mandate and is measured by the relationship between the SARB’s independence and domestic inflation. Discipline relates to the effect of independence on money growth rates, while independence is associated with a more disciplined central bank and moderate money growth rates. Methodology: A simple autoregressive distributed lag (ARDL) econometric specification and Granger causality tests are employed. Following the extant empirical literature, existing indexes of central bank independence (CBI) are regressed on annual rates of inflation and M2 money growth. Findings: A statistically significant negative relationship is established between both i) CBI and inflation and ii) CBI and money growth for the South African economy. This suggests that the SARB’s legal independence plays an important role in containing inflation (credibility) and limiting excessive money growth (discipline). Contribution: This article fills a gap in the extant literature by being the first attempt at formalising the empirical link between de jure CBI, inflation, and the rate of money growth in the South African economy.

Money growth pegging, Taylor rule, status‐seeking behavior and the “spirit of capitalism”

AbstractThis paper analyzes the impact of “spirit of capitalism” on stationary welfare and stability properties of a one‐sector Ramsey economy, where the demand of money is motivated by a cash‐in‐advance constraint on consumption expenditures. Preferences are defined over consumption and capital stock. There is a monetary authority that follows either a money growth pegging rule or an interest rate pegging rule. When a money growth pegging rule is introduced, a unique steady state emerges. A slight desire for status is a sufficient condition for an increase in the money growth rate to exert a local stabilizing effect and to improve stationary welfare. When an interest rate pegging rule is introduced, two steady states may emerge: a “liquidity trap” and an “interior” steady state. Both steady states are locally determinate. Moreover, we show that a slight desire for status is also a sufficient condition to ensure that the stationary welfare at “interior” steady state is higher than the one of the “liquidity trap”. It follows that an increase in the policy rate is, then, an efficient way to exit the “liquidity trap” steady state. Under similar conditions, a higher policy rate increases the stationary welfare at the “interior” steady state.

Influence of scissors difference of money growth rate on stock market return in different financial cycles

We use TVP-VAR model to study the relationship between the scissors difference of money growth and stock returns in different financial cycles from February 2001 to October 2022. The results show that the scissors difference of money growth rate has a positive effect on the stock return rate that lags behind for one month, but a negative effect on the stock return rate that lags behind for three months. The impact on the half-year lag is almost negligible. In addition, during the financial cycle contraction, the scissors difference of money growth rate has a greater impact on stock returns; In the period of financial cycle expansion, its impact is small. During the financial shock, its impact is between the first two.

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.

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.

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.

Alternative monetary policies and wealth and income inequality: the monetary instrument problem revisited

AbstractThis paper compares the impact of setting the money growth rate versus pegging the interest rate on aggregate real variables and their distributions. In either case, the monetary policy, in isolation, requires the price level to jump to ensure intertemporal solvency but has no real dynamic effects. The choice of monetary instrument has consequences for wealth and income inequality, doing so in potentially conflicting ways. Following real shocks, the accompanying monetary policy will influence the ensuing transition. For real variables, this operates entirely through its impact on the speed of convergence and is negligible. For financial variables, the impact also depends upon the initial jump in the price level. These effects vary more substantially between policies and have more significant distributional consequences. Overall, the impact on inequality is dominated by the real shocks themselves, rather than the accompanying monetary policy. Finally, we compare these two policies to inflation targeting, which is shown to be the least favorable for reducing wealth inequality, but the most favorable for reducing income inequality.

CAN THE NARROW AND BROAD MONEY SUPPLY GAP BE USED AS AN INVESTMENT INDICATOR FOR THE STOCK MARKET?

This study uses the golden cross and death cross formed by the gap between the narrow and broad money growth rates as threshold variables to estimate the threshold model and test the causal relationship between money supply and stock prices in eight emerging market economies (EMEs) in Asia; the sample periods are from January 2000 to December 2020. The results show a high-positive, bi-directional relationship between the money supply and stock prices in the golden cross regime. On the other hand, the money supply has a negative, one-way causality on stock prices in the death cross regime. We also conducted a robustness test during the COVID-19 spread, and the result shows that the mechanism still applies, but the effectiveness is reduced. Thus, our contribution is discovering the golden cross and death cross information formed by narrow and broad money, informing stock market investment.

REVISITING THE ROMER’S HYPOTHESIS AND OPENNESS AND INFLATION RELATIONSHIP FOR PAKISTAN

The substantial economic integration coupled with the increased inflation becomes serious dilemma for developing economies. Inflation has recently emerged as the major economic issue, making it necessary to investigate the additional causes of this issue. This study revisited the age-old subject of how openness affects inflation, utilizing time-series data from 1990 to 2021 for Pakistan. Primary goal of study is to investigate Romer hypothesis and relationship between openness as well as inflation in Pakistan using Co-integration analysis. Other explanatory variables are the growth of real agriculture value added, an average annual growth rate of money, and quasi-money and openness of economy. Though openness and inflation have a positive long-run relationship, there is no evidence of a short-run relationship, refuting Romer's argument for Pakistan. Present study offered signifncant information through results and support from previous studies in reaching the conclusion about inflation and its main reasons behand. Additionally, it offers renewed perspectives on how inflation is affected by global economic integration and how it thus undesarbaly influenced the financial growth from different dimensions that further hinders sustainable development.

Powell vs. the Pandemic: Some Simple Monetary Arithmetic

The lack of inflation in 2020 despite the fastest money growth rates since World War II at first seems puzzling for anyone believing that money still matters. The monetary expansion merely offset the effects of declining velocity of money and reduced spending associated with the lockdowns, however, making the scale of the 2020 monetary expansion both appropriate and justified. The subsequent uptick in inflation in 2021 that accelerated in 2022 was caused not by the rapid money growth in 2020 but rather by the Federal Reserve’s failure to sufficiently adjust policy in 2021 as the environment changed. The need to adjust policy in 2021 is clearly demonstrated in the monetary data analyzed in this paper. It took far too long for the Federal Reserve to recognize the problems inherent in continuing its 2020 policy bent into 2022.

글로벌 과잉유동성이 신흥시장국 부동산가격에 미치는 영향

This paper analyzes the impact of global excess liquidity, which is caused by unconventional monetary policies of major advanced economies (AE), on the house prices of emerging market economies (EME). The founding says that global excess liquidity, real GDP growth rate, CPI inflation, inter-bank interest rate and base money growth rate mainly affect the house prices of EME during the entire period. But non-linearity, in which the impact of each independent variable on the dependent variable is different between the non-crisis and crisis period, is not clear. Hence, we divide the entire period into two periods, one being “before global financial crisis (GFC)” and the other “after GFC”, to find out whether the behavior of major explanatory variables changes or not. The results say that before GFC, global excess liquidity, real GDP growth rate, CPI inflation, and base money growth rate affected house prices. But after GFC, only real GDP growth rate and base money growth rate affected it while global excess liquidity did not. We put additional variables, “synchronization of monetary policies between AE and EME” and “shares of cross-border claims of international banks”, into our econometric models in order to find out causes of the results above. We found that synchronization of monetary policies between AE and EME affected (it) but shares of cross-border claims of international banks did not.

Modeling the influence of monetary factors on the development of national production

The article is devoted to defining the influence of monetary policy on the development of national production and substantiating the prospects for its monetary regulation. It has been established that in recent years the monetary policy of Ukraine has been unfavourable for the industrial development in Ukraine. The NBU, which adheres to the monetary regime of inflation targeting, pursues a relatively strict policy, in particular, maintaining the real key rate at a level above neutral and low growth rates of the real money supply. As a result, for many years the national industry has been operating in conditions of a chronic shortage of working capital and investments, which exacerbates the problems of its development. To establish the nature and strength of the influence of monetary factors on long-term economic growth in Ukraine, a new economic and mathematical model based on production functions has been developed. Its parameterization showed that national output directly depends on the increase in invested labour, and vice versa – on the increase in Hryvnia exchange rate to U.S. Dollar (discourages exports) and U.S. Dollar Index (worsens the foreign economic situation). The impact on the increase in the real money supply can also have a positive impact on the economy, but its strength depends on the growth rate of broad money (with controlled inflation). At moderate rates, typical for the basic scenario of long-term development of the Ukrainian economy, investments are not increasing as vigorously as it is necessary for accelerated growth of real GDP and incomes of citizens. An increase in the growth rate of the real money supply (up to about 15% per year), set forth in the accelerated development scenario, can provide better results. It is proved that despite the importance of monetary variables, the key factors influencing the links in the chain "real money supply – investment – industrial growth" should be sought outside the monetary sphere proper. Stable expansion of the monetary base and growth of the real money supply do matter, but they are not able to solve the fundamental problems of modernization of economic institutions, structural restructuring of the economy and overcoming technological gaps with industrialized countries. It follows from this that in Ukrainian economy in the long run it is important for the regulator to maintain stable growth of the real money supply and controlled inflation, but this will be of fundamental importance for solving the accumulated problems only if the policies of the regulator and the government are coordinated, which should create favourable conditions and form appropriate institutions to reduce the dependence of the economy on raw material exports, accelerate national technical and technological development and increase its overall level.

Money’s predictive role in output: evidence from recent data

ABSTRACT We measure and assess the predictive performance of money in explaining output for the US, the UK, the Euro Area and Poland. Our approach, which uses more recent data and a larger set of areas, focuses on whether money ‘Granger causes’ output while taking into account the statistical properties of the data, which has implications for Granger causality tests. In addition to simple sum monetary aggregates, we use Divisia monetary aggregates, which are theoretically shown to be the actual measure of monetary services. Our results confirm that movements in money are still relevant in explaining movements in output, particularly when Divisia monetary aggregate is used. While the models using ‘narrow’ money, both simple sum and Divisia, provide mixed evidence of support, what appears to be robust across countries, is the predictive power of ‘broad Divisia’ in explaining output. Furthermore, our research finds no evidence that the statistical significance of money decreases as more variables are added to the model, or models with level variables produce more significant results than models with growth variables. In fact, rather than the level of money, it is the growth rate of money and the deviation of the growth rate of money from its time trend, which ‘Granger causes’ output.

Optimal long-run money growth rate in a cash-in-advance economy with labor-market frictions – CORRIGENDUM

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Optimal long-run money growth rate in a cash-in-advance economy with labor-market frictions

AbstractWe revisit the Friedman rule in a labor search model and extend Heer (2003), Cooley and Quadrini (2004), and Wang and Xie (2013) to one that allows for endogenous growth. We show that, even without a liquidity effect or a CIA constraint on firms’ wage payment, our model offers a different channel for moderate money growth to increase welfare. Intuitively, in a one-sector endogenous growth economy, the technology is of constant returns with respect to capital. When the labor market is frictional, a moderate increase in money growth induces an expansion in vacancy and employment. Labor and capital are complements in production. With an increase in employment, when the technology is neoclassical, the decreasing return in capital leads to a lower marginal product of labor. However, in an endogenous growth framework wherein the technology exhibits socially constant returns in capital, the marginal product of labor is constant. Due to a constant marginal product of labor, modest inflation raises employment, enlarges economic growth, and increases welfare. Moreover, the optimal long-run inflation rate departs from the Friedman rule, even when the Hosios rule holds. Finally, we find that our model with sustainable growth fits the data better than that without sustainable growth.

GROSS DOMESTIC SAVING NEXUS ECONOMIC GROWTH: EVIDENCE FROM ETHIOPIA

Economic growth is essential for economic development and achieving high real growth rate is the key aims of developing countries. And objective of this study was to analysis causal relationship between gross saving and real GDP growth in Ethiopia by using annual data for the period of 1981 to 2017. Three stage analyses were undertaken: First, the time series properties of growth rate of domestic savings, growth rate of gross domestic product per capita, Trade balance, human capital investment real interest rate, Inflation, gross capital formation, growth rate of broad money, Aggregate consumption expenditure rate, were determined by ADF unit root test procedure. The estimated results indicate none of the variables were I (2). Second, the co-integration test was undertaken by ARDL bound test. The long run and short run relationship the level of GDP per capita and growth rate of domestic saving was performed. As result suggested growth rate of domestic saving was insignificant in long run. But growth rate of domestic saving was negatively affected growth rate of GDP per capita in short run and significant at 5% level. Similarly, the effect on growth rate of domestic saving by growth rate of GDP per capital was performed. The result indicated, up trend of GDP per capita was positively affected growth rate of domestic saving in both short run and long run. The causality test was under taken by Granger test; the result suggested that there exist bidirectional causality between growth rate of domestic saving and growth rate of GDP per capital in Ethiopia. Thus the government should take steps to facilitate for investment through which saving affect the economy.

Okay boomer… Excess money growth, inflation, and population aging

AbstractWhat determines the strength of the relationship between money growth and inflation? A large literature suggests that it has weakened since the 1980s, without a definitive explanation of the cause. I explore how population age structure explains changes in the pass through of money growth rates to inflation. I show that the quantity theory of money holds over long time horizons, with sizable estimates of the impact of money growth on inflation in the short to medium term. Various measures of population age structure have significant impact on the strength of this relationship. These demographics account for an increase in the transmission of money growth to prices in the 1970s and a weakening throughout the great moderation. The baby boomer cohort, now in the age groups around retirement, may exert upward pressure on this money transmission to prices at present, with ambiguous implications in the future as low fertility and rising longevity persist.

Some Long-Run Correlations of Inflation in Developed Countries

Using 100+ years of data from 18 developed countries, we use a frequency domain technique to compute “long-run” correlations between inflation on the one hand and money growth and nominal interest rates on the other. The estimated long-run correlations are almost always positive. Their magnitude is relatively substantial for money growth, more modest for interest rates. We conclude that some traditional propositions about monetary neutrality are broadly consistent with the data.

Monetary policies and Islamic mutual fund flows: evidence from Islamic republic of Iran

PurposeThe main purpose of this study is to analyze the impact of monetary policies on Islamic mutual fund flows in the Islamic Republic of Iran.Design/methodology/approachIn this study, a panel regression model was used to test the research hypotheses. The sample consists of 4,760 seasonality data and 119 Islamic mutual funds over ten-year period between 2011 and 2020. The dependent variable of the study is the cash flow of Islamic mutual funds and the independent variable of monetary policies includes the money growth rate, the liquidity growth rate, interest rate and inflation rate.FindingsBased on the results of the hypothesis test, all research variables including money growth rate, liquidity growth rate, interest rate and inflation rate have a negative and significant impact on Islamic mutual fund flows. These findings are consistent with the efficient market hypothesis and signaling theory.Research limitations/implicationsThis study has implication for policymakers, regulators and fund managers. The results show that the negative impact of monetary policies on Islamic mutual fund flows has a direct effect on the allocation decisions and investment strategies of Islamic mutual fund investors and managers. Also, the results of the research can reduce policymakers’ concerns about monetary policies and provide them forward-looking guidance policy.Originality/valueTo the best of the authors’ knowledge, this is the first study to empirically examine the impact of monetary policies on Islamic mutual fund flows in an emerging economy and provides a significant contribution to the literature of mutual funds.