Endogeneity of money supply in Iran based on post keynsian approach: State-space modeling

The macroeconomic data of Iran during the last half century show that despite theoretical efforts and various policy measures, the inflation rate in our country in comparison with most countries in the world, has been high, chronic and volatile. In the studies regarding money and inflation, besides different approaches to money demand, there are also different approaches to money supply that can be classified into two general approaches: exogenous and endogenous money; Approaches that differ in both the process of money creation and policy ecommendations to curb inflation completely. In this research, an attempt has been made to evaluate the endogenity of money supply in Iran's economy by the post-Keynesian approach, while knowing more about the nature of the money creation process. For this purpose, the hypothesis of endogeneity of money supply in Iran is tested using annual data during the period 1357-1400. In order to measure the endogeneity of money supply, the time-varying parameter model was estimated by two-stage estimation method and state-space approach. The results indicate that money is endogenous, in addition, the effect of explanatory variables, is not constant, Actually credit is one the most important of these factors. Also, the trend of the coefficients indicates their changes over time. Based on the findings, the nature of banks is confirmed as a liquidity creation institution in addition to the central bank. Therefore, the central bank, especially in the last two decades, has less power in to determine and control liquidity increase. therefore, it is necessary to change monetary policies from targeting monetary totals to the conditions of endogenous money.