Abstract:This article presents results of tests on two related hypotheses on money supply. The first relates to an unresolved issue of money endogeneity while the second centres on the yet-explored relationship between money supply and bank stock returns if money is found to be endogenous. Our results, using long-horizon data of Group of Seven (G-7) economies, supports causality in money supply as running from bank lending to bank deposits, a result that is predicted by the post-Keynesian money supply endogeneity (bank… Show more
“…The differing nature of Institutional frameworks in Asia and its continuing growth memes reflect in an urgency to complete our understanding of growth mechanics in this region. Banks significantly contribute to economic growth and we show that this is not limited to the growth of private sector credit or money supply measures (Badaruddin, Ariff and Khalid, 2011) with its concomitant negative effects of overt or excess financialization. Do Bank stocks even lead economic growth?…”
The paper aims to recover the critical role of banks in defining the relationship between Financial Development and growth. We hypothesize that Banks can positively motivate templatized GDP growth. A System GMM estimation of GDP growth in a sample of high growth emerging markets from Asia investigates if bank stocks contain information beyond the monetary and banking aggregates. In a sample of emerging markets with 5% GDP growth, bank stocks create 0.22% of GDP growth for every 1 SD excess return in a weighted portfolio of bank stocks. The chosen emerging markets are homogenous based on WGI Indicators from World Bank. This coefficient is much higher than the recovered relationship presented by Cole, Moshirian and Wu (2008). Government ownership of banks and close monitoring of banks is found to be a positive for the overall economy while the market index is found to be not so informative about economic growth. A relook at a GMM system study from Cole, Moshirian and Wu (2008) shows better growth for emerging market investors without compromising quality. The research establishes the advantages of selecting emerging markets portfolios that reward better governance. A set of homogenized emerging markets can engender higher causative effects between banks and GDP growth allowing investors to focus on investment opportunity.
“…The differing nature of Institutional frameworks in Asia and its continuing growth memes reflect in an urgency to complete our understanding of growth mechanics in this region. Banks significantly contribute to economic growth and we show that this is not limited to the growth of private sector credit or money supply measures (Badaruddin, Ariff and Khalid, 2011) with its concomitant negative effects of overt or excess financialization. Do Bank stocks even lead economic growth?…”
The paper aims to recover the critical role of banks in defining the relationship between Financial Development and growth. We hypothesize that Banks can positively motivate templatized GDP growth. A System GMM estimation of GDP growth in a sample of high growth emerging markets from Asia investigates if bank stocks contain information beyond the monetary and banking aggregates. In a sample of emerging markets with 5% GDP growth, bank stocks create 0.22% of GDP growth for every 1 SD excess return in a weighted portfolio of bank stocks. The chosen emerging markets are homogenous based on WGI Indicators from World Bank. This coefficient is much higher than the recovered relationship presented by Cole, Moshirian and Wu (2008). Government ownership of banks and close monitoring of banks is found to be a positive for the overall economy while the market index is found to be not so informative about economic growth. A relook at a GMM system study from Cole, Moshirian and Wu (2008) shows better growth for emerging market investors without compromising quality. The research establishes the advantages of selecting emerging markets portfolios that reward better governance. A set of homogenized emerging markets can engender higher causative effects between banks and GDP growth allowing investors to focus on investment opportunity.
“…The banking system includes the central bank and the banks. Various studies have been carried out on government borrowing from the central bank and its effects (e.g., Aisen & Veiga, 2008;Kwon et al, 2009;Bassetto & Butters, 2010;Aktas et al, 2010;Badarudin et al, 2011;Bywaters & Thomas, 2011;Aisen & Hauner, 2013;Bajo-Rubio et al, 2014;Kliem et al, 2016;Berentsen & Waller, 2017;Williamson, 2018;Bassetto & Cui, 2018). Yet, government borrowing from banks and its implications are less considered by empirical studies.…”
In the Iranian economy, part of the government's fiscal policies and liabilities is always financed by banks. As government debt to banks increases, the private sector's access to loans and facilities is limited. It can cause undesirable macroeconomic outcomes. This study investigates the macroeconomic effects of government debt on banks in Iran over 1972-2016 by using an SVAR model. Results show that government debt to banks does not significantly affect the aggregate demand ratio to aggregate supply and GDP per labor. Still, it significantly increases the real exchange rate and decreases the nontradable goods' ratio to tradable goods prices. In the long-run, the real exchange rate, the ratio of non-tradable goods to tradable goods price, and the general price level changed by 34.46, 20.95, and 46.4 percent, respectively, which can be explained by the government debt to banks. Results indicate that the government policy manages the Iranian economy.
“…Many economists have frequently argued that the money supply is endogenously determined (Howells and Hussein, 1998;Badarudin et al, 2011Badarudin et al, , 2013Thenuwara and Morgan, 2017, among others). The theory of money endogeneity focuses on bank loan as a determinant of changes in the money supply.…”
This paper estimates the broad money multiplier for Thailand using monthly data from 1997M1 to 2017M12. It is found that there is nonlinear relationship between money supply and monetary base. An increase in monetary base causes the broad money supply to increase proportionally, and vice versa. This implies that the estimated money multiplier is stable during the period of investigation. This finding suggests that the Bank of Thailand has the ability to control the broad money supply. The finding also points to the soundness of the current monetary policy regime.
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