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Monetary Project Essay

770 words - 4 pages

Monetary policy is the method used by currency boards, central banks and other regulatory committees that regulates rate of growth and the size of the money supply within an economy through monetary tools such asthe discount rate, direct interest rate controls, open market operations and reserve requirements. In addition, open market operations are the tools mainly exploited within most of the Caribbean, with reserve requirements and the discount rate acting as supporting monetary tools.  However, Barbados primarily uses direct interest controls, supported by changes in reverse requirements, the discount rate as well as moral suasion.
Monetary base money comprises of narrow money (M1) and ...view middle of the document...


Econometric Approach
An econometric approach was applied to measure how the money base multiplier was affected by its determinants. To measure this relationship, a multiple regression was deployed and estimated using Ordinary Least Squares.
The general form of a multiple linear regression model is as follows:
Y=b0+b1X1+b2X2+b3X3+………+bnXn+ u
Where, Y = dependent variable
X1, X2, X3……..Xn = independent variables,
b1, b2, b3……… coefficient of independent variables.
u = error term
Tailored to our study:
Bmm = b0+b1Cp+b2Dp+b3R+u
Bmm = Base Money Multiplier
Cp = Currency in circulation
Dp = Customer Deposits
R = Total Bank Reserves
The hypothesis is as follows.
H0: there is a significant relationship between dependent variable Base money multiplier and independent variables, Cp, DP, and R.
H1: there is no significant relationship between dependent variable Base money multiplier and independent variables, Cp, DP, and R.

Dependent Variable: MBM | | |
Method: Least Squares | | |
Date: 03/23/15 Time: 14:19 | | |
Sample: 1 36 | | | |
Included observations: 36 | | |
| | | | |
| | | | |
Variable | Coefficient | Std. Error | t-Statistic | Prob.   |
| | | | |
| | | | |
LOG(CP) | 0.086603 | 0.005096 | 16.99560 | 0.0000 |
LOG(DP) | 0.429002...

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