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  • Does the Money Multiplier Hold in Pacific Island Countries? The Case of Papua New Guinea

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    Sharma515780-Published.pdf (4.592Mb)
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    Version of Record (VoR)
    Author(s)
    Ofoi, Mark
    Sharma, Parmendra
    Griffith University Author(s)
    Sharma, Parmendra P.
    Year published
    2021
    Metadata
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    Abstract
    This is the first study to systematically assess the significance of the standard money multiplier vis-à-vis the bank credit transmission channel in the case of Pacific Island Economies, focusing on Papua New Guinea. The vector autoregressive model comprising six variables—interest rate, inflation rate, loans, deposits, reserve money, and real output—was estimated using quarterly data for the period 1980q1 to 2017q4. We applied the ordinary least squares (OLS) method to estimate the system of vector autoregressions (VARs). The estimation was conducted for the full and sub-sample periods. From the impulse response functions ...
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    This is the first study to systematically assess the significance of the standard money multiplier vis-à-vis the bank credit transmission channel in the case of Pacific Island Economies, focusing on Papua New Guinea. The vector autoregressive model comprising six variables—interest rate, inflation rate, loans, deposits, reserve money, and real output—was estimated using quarterly data for the period 1980q1 to 2017q4. We applied the ordinary least squares (OLS) method to estimate the system of vector autoregressions (VARs). The estimation was conducted for the full and sub-sample periods. From the impulse response functions generated, the results suggest that the money multiplier does not hold and that the transmission to bank credit appears weak. It seems that the ability of the Central Bank to make loanable funds available through its conduct of monetary policy may not enhance private sector credit. On the other hand, there appears to be a significant and positive association between bank deposits and credit, suggesting that bank deposits and credit are endogenous and demand driven. View Full-Text
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    Journal Title
    Journal of Risk and Financial Management
    Volume
    14
    Issue
    9
    DOI
    https://doi.org/10.3390/jrfm14090449
    Copyright Statement
    © 2021 by the authors. Licensee MDPI, Basel, Switzerland. This article is an open access article distributed under the terms and conditions of the Creative Commons Attribution (CC BY) license (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.
    Subject
    Applied economics
    Banking, finance and investment
    Social Sciences
    Business, Finance
    Business & Economics
    monetary policy
    money multiplier
    Publication URI
    http://hdl.handle.net/10072/408774
    Collection
    • Journal articles

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