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Money stock determination process and money multiplier: case of South Korea

Money stock determination process and money multiplier: case of South Korea This study aims to re-examine the money stock determination process for South Korea under the assumption of the existence of potential asymmetric (non-linear) relations (a mechanism) between the money stock and the monetary base. Because, the true and detailed diagnosis of this mechanism is crucially important for the Bank of Korea’s (BOK)’ monetary policy, as this country has been adopting an inflation targeting policy (ITP) for a long-time.Design/methodology/approachThis paper applies the non-linear autoregressive distributed lag model by Shin et al. (2014). This model separates the original series of the monetary base into their increases (+) and decreases (−). The increases (+) and decreases (−) done by the BOK correspond to expansionary and contractionary monetary policies, respectively, in this study.FindingsThe empirical findings are two-fold. First, the money stock determination process in Korea has a non-linear (asymmetric) structure. This means that increases (+) and decreases (−) in the monetary base have asymmetric (different) impacts on money stock. Second, the BOK’s only expansionary monetary policy exhibits exogenous nature money stock determination with an almost stable money multiplier. These findings may help the BOK to take preventive precautions in its monetary policy implementations.Originality/valueThis study with its methodology may help the BOK to take preventive measures in its ongoing ITP proactively. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Financial Economic Policy Emerald Publishing

Money stock determination process and money multiplier: case of South Korea

Journal of Financial Economic Policy , Volume 13 (4): 12 – Jun 28, 2021

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References (27)

Publisher
Emerald Publishing
Copyright
© Emerald Publishing Limited
ISSN
1757-6385
DOI
10.1108/jfep-02-2020-0039
Publisher site
See Article on Publisher Site

Abstract

This study aims to re-examine the money stock determination process for South Korea under the assumption of the existence of potential asymmetric (non-linear) relations (a mechanism) between the money stock and the monetary base. Because, the true and detailed diagnosis of this mechanism is crucially important for the Bank of Korea’s (BOK)’ monetary policy, as this country has been adopting an inflation targeting policy (ITP) for a long-time.Design/methodology/approachThis paper applies the non-linear autoregressive distributed lag model by Shin et al. (2014). This model separates the original series of the monetary base into their increases (+) and decreases (−). The increases (+) and decreases (−) done by the BOK correspond to expansionary and contractionary monetary policies, respectively, in this study.FindingsThe empirical findings are two-fold. First, the money stock determination process in Korea has a non-linear (asymmetric) structure. This means that increases (+) and decreases (−) in the monetary base have asymmetric (different) impacts on money stock. Second, the BOK’s only expansionary monetary policy exhibits exogenous nature money stock determination with an almost stable money multiplier. These findings may help the BOK to take preventive precautions in its monetary policy implementations.Originality/valueThis study with its methodology may help the BOK to take preventive measures in its ongoing ITP proactively.

Journal

Journal of Financial Economic PolicyEmerald Publishing

Published: Jun 28, 2021

Keywords: Money supply; Money and interest rates; E51; E52

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