Acta Univ. Agric. Silvic. Mendelianae Brun. 2011, 59(7), 177-186 | DOI: 10.11118/actaun201159070177

Monetary policy implementation and money demand instability during the financial crisis

Svatopluk Kapounek
Ústav financí, Mendelova univerzita v Brně, Zemědělská 1, 613 00 Brno, Česká republika

The author focuses on the money endogeneity in the context of common monetary policy implementation in the euro area. The empirical analysis shows money demand function instability during the financial crisis. The instability is described by decrease in credit money creation and money velocity changes. The cointegration tests identifed long-run positive relationship between monetary aggregates and economic activity. Concurrently, the economic activity is treated to be weakly exogenous in the model.
The conclusions are discussed with Postkeynesians' assumption, that central banks cannot fix the stock of money in a country. The causality is directed from economic activity to money demand.

Keywords: money endogeneity, cointegration, money velocity, weak exogeneity
Grants and funding:

The results introduced in the paper are supported by the Czech Science Foundation via grant No. P402/11/0570 with the title "Time-frequency approach for the Czech Republic business cycle datting".

Received: August 28, 2011; Published: January 26, 2014  Show citation

ACS AIP APA ASA Harvard Chicago IEEE ISO690 MLA NLM Turabian Vancouver
Kapounek, S. (2011). Monetary policy implementation and money demand instability during the financial crisis. Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis, 59(7), 177-186. doi: 10.11118/actaun201159070177
Share...
Download citation
  • BibTeX (.bib)
  • Bookends (.ris)
  • EasyBib (.ris)
  • EndNote (.enw)
  • EndNote 8 (.xml)
  • ISI WoS (.isi)
  • Medlars (.medlars)
  • Mendeley (.ris)
  • MODS (.xml)
  • Papers (.ris)
  • RefWorks (.txt)
  • RefManager (.ris)
  • RIS (.ris)
  • MS Word (.xml)
  • Zotero (.ris)
    • Open full article

    References

    1. ARESTIS, P., 1988: The Credit Segment of a UK Post Keynesian Model. Journal of Post Keynesian Economics, 10(2), pp. 250-269. DOI: 10.1080/01603477.1987.11489676 Go to original source...
    2. BASK, M., FIDRMUC, J., 2008: Fundamentals and Technical Trading: Behavior of Exchange Rates in the CEECs. Open Economies Review, Springer, Vol. 20(5), pp. 589-605. DOI: 10.1007/s11079-008-9095-3 Go to original source...
    3. BINDSEIL, U., 2004: Monetary Polidy Implementation. Theory, Past and Present. Ox-ford: OUP, ISBN 0-19-927454-1.
    4. BARKER, T., 2010: Endogenous Money in 21st Century Keyxnesian Economics. In: Arestis, P. and Sawyer, M., 2010: 21st Century Keynesian Economics. Palgrave Macmillan, 2010, pp. 202-239. ISBN 978-0-230-23601-1. Go to original source...
    5. BROWN, R. L., DURBIN, J., EVANS, J. M., 1975: Techniques For Testing the Constancy of Regression Relationships Over Time. Journal of the Royal Statistical Society, B37, pp. 149-163. Go to original source...
    6. CHATELAIN, J. B. et al., 2003: Firm Investment and Monetary Policy Tansmission in the Euro Area. In: ANGELONI, I., KASHYAP, A., MOJON, B.: Monetary Policy Transmission in the Euro Area. Cambridge: Cambridge University Press, pp. 133-161. ISBN 0-521-82864-3. Go to original source...
    7. EL-SHAGI, M., GIESEN, S., 2010: Money and Inflation: The Role of Persistent Velocity Movements. Discussion paper No. 2. 2010. Halle Institute for Economic Research, 2010. Available from: http://ideas.repec.org/p/iwh/dispap/2-10.html (on-line), cit. 2011_04_01.
    8. ECB, 2004: The Monetary Policy of the ECB, 2004. Frankfurt am Main: European Central Bank, 2004. ISBN 92-9181-479-2.
    9. FIDRMUC, J., REINER, M., 2011: FDI, Trade and Growth in CESEE Countries. Focus on European Economic Integration. issue 1, pp. 70-89.
    10. FONTANA, G., PALACIO-VERA, A., 2003: Modern Theory and Practise of Central Banking: An Endogenous Money Perspective. In: ROCHON, L. P., ROSSI, S.: Modern Theories of Money. Edwar Elgar Publishing, 2003, pp. 41-66, ISBN 1-84064-789-2. Go to original source...
    11. GREENE, H. W., 2003: Econometric Analysis, fifth edition, Pearson Education, New Jersey, 2003, 649-659, ISBN 0-13-066189-9.
    12. HANSEN, B. E., 1992: Testing for Parameter Instability in Linear Models. Journal of Policy Modeling. Vol. 14, pp. 517-533. DOI: 10.1016/0161-8938(92)90019-9 Go to original source...
    13. HAGEN, J., HOFMANN, B., 2009: Monetary Policy Orientation in Times of Low Inflation. In: ALTIG, D. E., NOSAL, E.: Monetary Policy in Low-Inflation Economies. Cambridge: Cambridge University Press, pp. 181-214. ISBN 978-0-521-84850-3. Go to original source...
    14. ISSING, O., 1997: Monetary Targeting in Germany: The stability of montery policy and of the monetary system. Journal of Monetary Economics, 39, January, 1997, pp. 67-69. DOI: 10.1016/S0304-3932(97)00006-8 Go to original source...
    15. JOHANSEN, S., 1988: Statistical Analysis of Cointegrating Vectors. Journal of Economic Dynamics and Control. 12, 1988, pp. 231-254. DOI: 10.1016/0165-1889(88)90041-3 Go to original source...
    16. JOHANSEN, S., 1991: Estimation and Hypothesis Testing of Cointegrating Vectors in Gaussian Vector Autoregressive Models. Econometrica, 59, 1991, pp. 1551-1580. DOI: 10.2307/2938278 Go to original source...
    17. JOHANSEN, S., 1994: The Role of the Constant and Linear Terms in Cointegration Analysis of Nonstationary Variables. Econometric Reviews. 13(2), 1994. Go to original source...
    18. JOHNSON, L. E., ROBERT, D. L. and THOMAS C., 2004: The Concept of Equilibrium: A Key Theoretical Element in Keynes' Revolution. Atlantic Economic Journal, 32(3), pp. 222-232. DOI: 10.1007/BF02299440 Go to original source...
    19. KALDOR, N., 1981: Fallacies of Monetarism. Kredit und kapital, 14(4), pp. 451-462. Go to original source...
    20. KAPOUNEK, S., 2010: Poptávka po penězích v keynesiánských a postkeynesiánských konceptech - příklad České republiky a eurozóny. Acta Universitatis agriculturae et silviculturae Mendelianae Brunensis in Brno. 2010. Vol. LVII, No. 6, pp. 209-225. DOI: 10.11118/actaun201058060209 Go to original source...
    21. MOORE, B. J., 1978: A Post Keynesian Approach to Monetary Theory. Challenge 21(4), September-October, pp. 44-52. DOI: 10.1080/05775132.1978.11470450 Go to original source...
    22. MOORE, B. J., 1979: The Endogenous Monetary Stock. Journal of post Keynesian Economics, 2(1), 49-70. DOI: 10.1080/01603477.1979.11489137 Go to original source...
    23. MOORE, B. J., 1981: The Difficulty of Controlling the Money Stock. Journal of Portfolio Management, 7(4), 1-14. DOI: 10.3905/jpm.1981.408820 Go to original source...
    24. MOORE, B. J., 1996: The Money Supply Process: A Historical Reinterpretation. In: Nell, E. and Deleplace G. (eds), Money in Motion: The Post Keynesian and Circulation Approaches. London, MacMillan Press.
    25. POMĚNKOVÁ, J., KAPOUNEK, S., 2009: Interest Rates and Prices Causality in the Czech Republic - Granger Approach. Zemědělská ekonomika, Vol. 55, No. 7, pp. 347-356. ISSN 0139-570X. Go to original source...
    26. ROCHON, L. P., 2006: Endogenous Money, Central Banks and the Banking System: Basil Moore and the Supply of Credit. In: Setterfield M. (eds), Complexity, Endogenous Money and Macroeconomic Theory. Northampton, Edward Elgar. Go to original source...
    27. THOMAS, R. L., 1993: Introductory Econometrics: Theory and Applications. London: Longman Economics. ISBN 0-582-07378-2.
    28. WEINTRAUB, S., 1982: Money-Demand Motives: a Reconsideration. Économique Appliquée, 35(3), pp. 361-376. Go to original source...
    29. WRAY, L. R., 2006: When are interest rates exogenous? In: Setterfield, M.: Complexity, Endogenous Money and Macroeconomic Theory. Northampton: Edward Elgar Publishing, pp. 271-289. ISBN 1-84376-987-5. Go to original source...

    This is an open access article distributed under the terms of the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License (CC BY NC ND 4.0), which permits non-comercial use, distribution, and reproduction in any medium, provided the original publication is properly cited. No use, distribution or reproduction is permitted which does not comply with these terms.


    Return to the content