A project submitted to the School of Graduate Studies of Addis Ababa University in Partial fulfillment of the requirement for the Degree in Masters of Art in Applied Economic Modeling and Forecasting

2024/09/06 by GASHAW DESALEGN

paper · doi:10.20372/nadre:753

Abstract

The aim of this paper is to investigate empirically the ability of Nation Bank of Ethiopia to<br> control the stock of money supply. This investigation seems to conform to the ongoing<br> controversy surrounding the exogeneity /endogeneity hypothesis regarding the money supply i.e.<br> the controllability/non-controllability of the money supply by the Central Bank. The paper has first<br> tested the money multiplier model which says money is exogenous and thus controllable by central<br> banks. We examine the constancy and Stationarity of the money multiplier and the results<br> suggest that the money multiplier remains non stationary for the entire sample period. We then<br> tested cointegration between money supply and monetary base and find the evidence of<br> cointegration between two variables. The coefficient restrictions are satisfied only partially. The<br> result from this model shows it will be difficult to use the money multiplier model as a frame<br> work for monetary policy.

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