Endogeneity of Money Supply in the Russian Economy in the Context of the Monetary Regime Change
Authors: Marina Yu. Malkina, Igor A. Moiseev
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The article deals with the endogeneity of money supply in the Russian economy in the context of the changes made to the rules of monetary regulation. We summarized and analyzed the basic concepts of the modern theory of endogenous money, and described the approaches of various researchers to studying the impact of financial innovations and changes in the principles of monetary regulation on money supply endogeneity. In the empirical part of the research, in order to test the hypothesis on the endogenous origin of the money supply in the Russian economy in 2010–2018, we applied the Granger causality test and the Johansen cointegration test as well as VAR and VECM models. The study was based on the monthly data for the monetary sphere (M2 monetary aggregate, monetary base, and money multiplier), the banking sphere (loans, deposits, and interest rate) and the transactional sector of the economy (wholesale and retail turnover). We split the time series into two intervals: 2010–2013 and 2014–2018, because the monetary regime was being changed significantly throughout 2013–2014. As a result, the hypothesis of money supply endogeneity has not been rejected for both periods of time, and evidence of structuralism has been revealed. In the short term of 2010–2013, it was mainly commercial banks that reacted to an increase in money demand (through money multiplier); however, in the long run the Central Bank of Russia prevailed (through changing the monetary base). Nevertheless, in 2014–2018 the Bank of Russia demonstrated an efficient adjustment of money supply toward money demand, which had been reflected in the response of the monetary base in the short term. Meanwhile, in this period the role of commercial banks in lending was increased through operational managing of their own resources, which was reflected in the reaction of the money multiplier to the growth of business activity in the country. These changes indicated an amplification of money supply endogeneity in the Russian economy. In addition to passive adaptation, we revealed a particular activism in the monetary sphere, when the initiative of money emission came not so much from the monetary authorities as from commercial banks fighting for a market share in the face of intensified banking competition and reduced bank margins.