Re-examining the stability of money multiplier for the US: the nonlinear ARDL model

Abstract

The rising uncertainties in the economy and the entwined global financial markets can easily cause nonlinear (asymmetric) behaviors among economic actors. Accordingly, this study re-considers the stability of the money multiplier from a different methodological perspective from that of prior studies, which assumed a linear relationship between money supply and monetary base. To this aim, the nonlinear ARDL model is applied for the US for the 2000M1-2018M9 period. Empirical findings of the nonlinear model indicate that only increases in positive monetary base shocks have a proportional relation with money supply. Additionally, the nonlinear ARDL detects proportional relationships between money supply and monetary base lower degree than the linear model.