TY - JOUR
T1 - Money supply, interest rate, liquidity and share prices
T2 - A test of their linkage
AU - Ariff, Mohamed
AU - Chung, Tin Fah
AU - M., Shamsher
PY - 2012
Y1 - 2012
N2 - The money supply impacts on interest rate and liquidity were first proposed in 1961 by Friedman, the late Nobel laureate. The liquidity effect has yet received unanimous empirical support. Also, research interest on liquidity subsided in the 2000s. Using quarterly data over 1960-2011 and simultaneous solution to a system of equations, this paper reports positive liquidity effect from money supply. By extending the system of equations with a liquidity equation and after controlling the effect of earnings, evidence is found of a significant positive effect from liquidity on share prices. Money supply is found to be endogenous as in post Keynesian theory. These findings, obtained after solutions to several econometric deficiencies in prior studies, provide clear verification of the endogenous money supply theory, money effect on liquidity and on the extension of the model for a liquidity effect on asset prices.
AB - The money supply impacts on interest rate and liquidity were first proposed in 1961 by Friedman, the late Nobel laureate. The liquidity effect has yet received unanimous empirical support. Also, research interest on liquidity subsided in the 2000s. Using quarterly data over 1960-2011 and simultaneous solution to a system of equations, this paper reports positive liquidity effect from money supply. By extending the system of equations with a liquidity equation and after controlling the effect of earnings, evidence is found of a significant positive effect from liquidity on share prices. Money supply is found to be endogenous as in post Keynesian theory. These findings, obtained after solutions to several econometric deficiencies in prior studies, provide clear verification of the endogenous money supply theory, money effect on liquidity and on the extension of the model for a liquidity effect on asset prices.
UR - http://www.scopus.com/inward/record.url?scp=84870246496&partnerID=8YFLogxK
U2 - 10.1016/j.gfj.2012.10.005
DO - 10.1016/j.gfj.2012.10.005
M3 - Article
AN - SCOPUS:84870246496
SN - 1044-0283
VL - 23
SP - 202
EP - 220
JO - Global Finance Journal
JF - Global Finance Journal
IS - 3
ER -