## Endogenous Money Supply and Money Demand

_IMF Working Papers, November 1, 2000_

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## Bibliographic details
- Authors: Woon Gyu Choi, Seonghwan Oh
- Published: November 1, 2000
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451859553.001

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### Summary and research question
- Paper explores behavior of money demand by explicitly accounting for money supply endogeneity arising from endogenous monetary policy and financial innovations.
- Theoretical analysis indicates that money supply factors matter in the money demand function when the money supply partially responds to money demand.
- Empirical analysis uses U.S. data to evaluate relevance of policy stance to demand for M1 under a regime in which monetary policy is substantially endogenous.

### Key empirical findings
- Empirical results with U.S. data provide strong evidence for the relevance of the policy stance to the demand for M1 under a regime in which monetary policy is substantially endogenous.
- Specifically, the authors find that tighter monetary policy has substantial positive impacts on money demand under the recent Federal funds rate targeting.

### Methodology and analytical approach
- The paper combines theoretical analysis of money supply endogeneity with empirical estimation using U.S. data.
- Vector autoregression techniques and econometric analysis are used to assess the interaction between money supply endogeneity, monetary policy stance, and money demand.

### Policy implications and interpretations
- When monetary policy is substantially endogenous (policy responds to money demand), policy stance is a relevant determinant of money demand.
- Under Federal funds rate targeting, monetary tightening is associated with substantial positive impacts on M1 demand, implying that policy stance should be explicitly considered when modeling money demand.

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- **Endogenous Money Supply and Money Demand - WP/00/188**
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_Source: https://www.imf.org/en/publications/wp/issues/2016/12/30/endogenous-money-supply-and-money-demand-3864_