Testing the endogenous hypothesis of post-Keynesian money supply in the Iranian economy

Document Type : Research Paper

Author

Assistant Professor, Department of Economics, Payame Noor University, Tehran, Iran.

Abstract

In the conventional view of economics, the money supply is determined exogenously by the central bank. So that by creating a monetary base, the central bank has increased bank loans and deposits, and as a result, money creation is widespread. This view has been challenged by the Post Keynesian. According to Post Keynesian theory, the starting point for money creation is lending by commercial banks, which creates new bank deposits, which in turn increases the volume of reserves, leading to a massive money supply, so the money supply It is endogenous. The present study examines post Keynesian theory in the Iranian economy. To conduct this research, 1978-2017 data have been used. Analyzes were performed using Granger causality test and Wald test. The results showed that both bank loans and bank deposits are the cause of the monetary base and were not approved for causation from the monetary base to bank loans and deposits. Therefore, the hypothesis of post-Keynesian monetary base endogeneity in the Iranian economy was confirmed. The results also show that bank loans and bank deposits are the common cause of large money supply. As a result, the hypothesis of widespread endogenous post-Keynesian money in the Iranian economy is confirmed. According to the results, in order to manage the money supply and liquidity in the Iranian economy, a review of monetary policy in terms of endogenous money supply is proposed

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References

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Quarterly Journal of Applied Theories of Economics
Volume 8, Issue 2 - Serial Number 29
September 2021
Pages 187-206

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