Endogeneity of Money and Non-Conventional Single Monetary Policy in the Context of Ongoing Crisis in three Central European Countries

Abstract

In this study, we evaluate the relationships between credit creation, bank deposits, and monetary aggregates with a focus on the debate about money endogeneity. For data of Slovakia, Czech Republic, and Germany, we apply the Granger causality test in bivariate VAR models using monthly time series from the period between two large crises (from 02/2009 to 02/2020) to estimate causal relationships between the variables. Our results confirm endogenous money creation with a causal link going from loan growth rate to deposit growth rate in all three countries. In the context of the quantitative easing programme implemented by the national central banks as a response to bland economic recovery we also examine its pass-through into lending stimulation. Our results suggest that the efficiency of implemented quantitative easing might be limited.