On the Endogeneity of the Money Multiplier in India

Citing a break in the statistical association between the broader money aggregates and reserve money in the
the post-reforms period of the 1990s vis-a-vis the 1980s, this paper argues that an endogenous money
multiplier framework is best suited for analyzing the money supply process in India and questions the
simplifying assumptions tending to justify stability and predictability of the money multiplier especially in
the context of a deregulated financial system with market determined interest rates. An empirical analysis
conducted using monthly data for the period April 1980 through March 2000 establishes this and traces the
source of the endogeneity of these multipliers to a range of macroeconomic variables.