| Sumario: | The article presents a structural analysis for the demand and supply of money in a developing economy with India as the epicenter. The article centers on implications related to the recent studies by R.L. Teigen and P.E. Smith. There are two major implications: (a) the supply of money may not be an exogenous variable and (b) the ordinary least squares estimates of the money demand function with the interest rate as an explanatory variable may suffer from simultaneous-equation bias. In this case-study of India some of these familiar issues in monetary economics as well as some monetary issues peculiar to developing economies are investigated. The conclusions suggest that Money supply is not an exogenous variable in a monetary system. Our study shows that money supply, among other variables, depends on the interest rate differential between the Central Bank discount rate and the short- term interest rate of the organized money market. Since the latter is found to be inversely related to money demand, the stock of money becomes an endogenous variable.
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