Joshua Wojnilower — The Endogenous Money Hypothesis – Empirical Evidence from the United States (1971-2008)

A few months ago, I linked to a working paper by myself and another GMU PhD student, Paul Mueller. The paper was well-received and judging by the number of downloads on SSRN, is a topic of interest to many people. This reception led to a number of very helpful comments and suggestions, many of which we used in revising that draft....

“In contrast to standard textbook renderings of an exogenous money supply and money multiplier, Post Keynesian economists contend that money supply is statistically endogenous to the demand for credit. Empirical evidence based on analysis of monthly U.S. data from 1971 to 2008 substantiates the endogenous money hypothesis. Results from Toda and Yamamoto Granger-causality tests demonstrate unidirectional Granger-causality from commercial bank lending to the monetary base and money supply. Bidirectional Granger-causality between money supply and nominal income also exists. These results are relatively robust to variations in monetary aggregates, such as broader measures (e.g. M3 and M4) and weighted-average indexing (e.g. Divisia).”

Bubbles and Busts
The Endogenous Money Hypothesis – Empirical Evidence from the United States (1971-2008)
Joshua Wojnilower