The money multiplier and competing theories of money creation: empirical validation for Russia.

This article focuses on empirically testing competing theories of money creation in the Russian banking system from 2005 to 2019, comparing findings with the USA. It evaluates three main theories: the Credit Theory of Money (CTM), the Fractional Reserve Theory (FRT), and the Financial Intermediation Theory (FIT), using a vector autoregression (VAR) model to analyze monetary aggregates and banking behavior. The study finds that CTM, which posits that banks create money primarily constrained by credit demand rather than reserves, is best supported by Russian data, especially after 2012 when banks shifted to modern liquidity management practices. The results challenge the traditional money multiplier concept and suggest that in contemporary Russia, as in the USA, money supply is endogenous and influenced mainly by credit demand, with central banks managing interest rates rather than controlling reserves. This research contributes to a generalized theory of money creation by linking empirical evidence to historical and institutional contexts in emerging markets.