The existence of a stable money multiplier in the small open economy of Kazakhstan

Abstract

Purpose The purpose of this paper is to examine whether a long-run stable money multiplier exists in Kazakhstan. It also investigates whether different episodes of currency shocks, including the financial crisis and recession of 2008–2010, have affected the working of the money multiplier in Kazakhstan. Design/methodology/approach The long-run multiplier is tested employing three cointegration tests: Engle–Granger (1987), Phillips–Ouliaris (1990) and Johansen and Juselius (1990). Findings The results of cointegration and coefficient restrictions tests are consistent with the money multiplier when broad money (M2 and M3) is used rather than when narrow money (M1) is used. The relationship between broad money and monetary base is structurally stable when examined on the basis of a dynamic (an error-correction) model. However, the M2 multiplier performs better than the M3 multiplier. Research limitations/implications This paper is restricted to testing a mechanistic version of the money multiplier and its stability using both narrow (M1) and broad money (M2 and M3) supplies. Thus, the paper focusses on the money view of the multiplier rather than the credit view of the multiplier. Practical implications One implication that emerges from the findings of this paper is that the National Bank of Kazakhstan can control M2 by controlling the monetary base, and hence the latter can serve as an indicator for monetary policy. Social implications The validity of the money multiplier implies that monetary policy can be conducted to control the money supply and the provision of bank credit to private sector to stabilize economic activity, thereby leading towards social stability in the economy as well. Originality/value In addition to offering a coherent survey of the literature on the standard money multiplier, this paper is a first attempt to find a stable money multiplier for Kazakhstan.

Money Supply Determination Process for Japan

“…2 and 3 in the logarithmic regression form, we obtain the following models: (4) (5) where α 1 and β 1 are logarithms of mm1 and mm2. The conditions of an exogenous money supply determination processes are stationary (stable) mm1 and mm2 and stationary monetary base (MB), M1, M2 or cointegrated MB with M1, M2 if they are not stationary at the same order of integration (Khan, 2010; Thenuwara and Morgan, 2017; Bhatti and Khawaja, 2018). All this means is that α 1 and β 1 must be zero (logarithms of stable mm1 and mm2 which equal to 1 in the forms of , ) and α 2 and β 2 must be 1, implying one-to-one proportion relations between M1, M2 and MB.…”

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