Monetary targeting in Sri Lanka: how much control does the central bank have over the money supply?

Thenuwara, Wasanthi and Morgan, Bryan (2015) Monetary targeting in Sri Lanka: how much control does the central bank have over the money supply?. Journal of Economics and Finance, 1-21. doi:10.1007/s12197-015-9350-6


Author Thenuwara, Wasanthi
Morgan, Bryan
Title Monetary targeting in Sri Lanka: how much control does the central bank have over the money supply?
Journal name Journal of Economics and Finance   Check publisher's open access policy
ISSN 1938-9744
1055-0925
Publication date 2015-12-01
Year available 2015
Sub-type Article (original research)
DOI 10.1007/s12197-015-9350-6
Open Access Status Not yet assessed
Start page 1
End page 21
Total pages 21
Place of publication New York, United States
Publisher Springer
Collection year 2016
Language eng
Abstract This paper empirically addresses the questions “is money supply in Sri Lanka endogenous or exogenous and how much control does the Central Bank have over the money supply?” Thus the paper also examines the viability of the current monetary targeting policy regime. Two complementary approaches are used. The first is the monetarist approach and tests whether money supply is exogenously determined by testing the stability of the broad money multiplier and by testing for a long-run relationship between monetary base and broad money supply. The second approach tests the Post-Keynesian contention that the money supply is endogenous with the financial system as a whole causing changes to the money supply through bank lending creating monetary liabilities. The findings indicate the broad money multiplier is not stable and the tests of the endogenous money theory shed light on why it is unstable. The overall results cast doubt the effectiveness of the current monetary targeting policy regime in Sri Lanka.
Keyword Monetary supply
Monetary targeting
Money multiplier
Endogenous money theory
Q-Index Code C1
Q-Index Status Provisional Code
Institutional Status UQ

Document type: Journal Article
Sub-type: Article (original research)
Collections: Official 2016 Collection
School of Economics Publications
 
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