Geldbasiskonzepte und Geldmenge (II)

Abstract

Summary Monetary Base Concepts and the Quantity of Money (II)

The second part of our studies* centred around the econometric testing of the hypotheses arrived at in the first part on the basis of the theoretical relationships. We worked with a two-equation model, using monthly and quarterly data for the Federal Republic of Germany from January 1965 to January 1973. Apart from the fact that plausible values were obtained for the income and interest elasticity of the demand for money - as a by-product, so to speak - we were able to demonstrate some important theoretical differences for alternative money supply functions, depending on whether the concept of the monetary base (B^m), the adjusted base (B’) or the extended base (B^e) is regarded as exogenously determined. For example, we were able to show that the money supply multipliers respond to changes in the loan rate and bank rate relatively insensitively when B^e is used and relatively sensitively when B’ is used. This also partly explains the fact that changes in B^e have a comparatively marked effect on the trend of the quantity of money and exert a dominating influence on it. When applying B’ and B^m, on the other hand, we found a strong absorption effect acting via the interest rate and resulting in the rate of change in the quantity of money remaining. significantly smaller than the rate of change in the monetary base after conclusion of the adaption process. Hence it is also not surprising that the influence of the income trend via the demand for money has a substantially greater effect on the trend of the quantity of money when using B’ and B^mthan when B^e is taken as the exogenously controlled magnitude. Lastly, on the basis of the estimates, it proved that for all three monetary base concepts the adjustment processes were completed on average after about 12 months, but exhibited different time profiles. While the main effect of a change in the extended base B^e is exerted within mine months, that of the adjusted base B’ is concluded earlıer. In the case of B’, an initial monetarization effect can be distinguished clearly from an ensuing credit-granting effect.