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The existence of a stable money multiplier in the small open economy of Kazakhstan

Razzaque Hamza Bhatti (Department of Economics and Finance, Qassim University, Buraidah, Saudi Arabia)
Muhammad Junaid Khawaja (Department of Economics and Finance, Qassim University, Buraidah, Saudi Arabia)

Journal of Economic Studies

ISSN: 0144-3585

Article publication date: 12 November 2018

208

Abstract

Purpose

The purpose of this paper is to examine whether a long-run stable money multiplier exists in Kazakhstan. It also investigates whether different episodes of currency shocks, including the financial crisis and recession of 2008–2010, have affected the working of the money multiplier in Kazakhstan.

Design/methodology/approach

The long-run multiplier is tested employing three cointegration tests: Engle–Granger (1987), Phillips–Ouliaris (1990) and Johansen and Juselius (1990).

Findings

The results of cointegration and coefficient restrictions tests are consistent with the money multiplier when broad money (M2 and M3) is used rather than when narrow money (M1) is used. The relationship between broad money and monetary base is structurally stable when examined on the basis of a dynamic (an error-correction) model. However, the M2 multiplier performs better than the M3 multiplier.

Research limitations/implications

This paper is restricted to testing a mechanistic version of the money multiplier and its stability using both narrow (M1) and broad money (M2 and M3) supplies. Thus, the paper focusses on the money view of the multiplier rather than the credit view of the multiplier.

Practical implications

One implication that emerges from the findings of this paper is that the National Bank of Kazakhstan can control M2 by controlling the monetary base, and hence the latter can serve as an indicator for monetary policy.

Social implications

The validity of the money multiplier implies that monetary policy can be conducted to control the money supply and the provision of bank credit to private sector to stabilize economic activity, thereby leading towards social stability in the economy as well.

Originality/value

In addition to offering a coherent survey of the literature on the standard money multiplier, this paper is a first attempt to find a stable money multiplier for Kazakhstan.

Keywords

Acknowledgements

The authors of this paper have not made their research data set openly available. Any enquiries regarding the data set can be directed to the corresponding author.

Citation

Bhatti, R.H. and Khawaja, M.J. (2018), "The existence of a stable money multiplier in the small open economy of Kazakhstan", Journal of Economic Studies, Vol. 45 No. 6, pp. 1211-1223. https://doi.org/10.1108/JES-10-2017-0284

Publisher

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Emerald Publishing Limited

Copyright © 2018, Emerald Publishing Limited

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