Money stock determination process and money multiplier: case of South Korea
Journal of Financial Economic Policy
ISSN: 1757-6385
Article publication date: 22 February 2021
Issue publication date: 28 June 2021
Abstract
Purpose
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/approach
This 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.
Findings
The 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/value
This study with its methodology may help the BOK to take preventive measures in its ongoing ITP proactively.
Keywords
Acknowledgements
Conflict of Interest: The authors confirm that this work is original and has not been published elsewhere nor is it currently under consideration for publication elsewhere.
Citation
Ongan, S. and Gocer, I. (2021), "Money stock determination process and money multiplier: case of South Korea", Journal of Financial Economic Policy, Vol. 13 No. 4, pp. 479-490. https://doi.org/10.1108/JFEP-02-2020-0039
Publisher
:Emerald Publishing Limited
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