ABSTRACT:- In this paper, the endogenous money hypothesis shall be illustrated and tested i.e. the role of money (endogenous money) in the Saudi Arabian economy shall be illustrated. The paper starts with a description of how various economic schools of thought (Orthodox versus Heterodox) interpret the role of money and its corresponding mechanism on economic factors. Afterwards, this paper shall use Granger causality approach to examine whether the endogenous money hypothesis holds true in the case of Saudi Arabia. In context, the most critical piece of information that can be derived from this paper is that there are statistical evidences showing that the classical Modern Money Theory, which says that a country with fixed exchange rate would not have endogenous money mechanisms, does not hold in the case of Saudi Arabia. The empirical findings of this paper indicate that Saudi Arabia defies this theory with a fixed exchange rate but with an endogenous money supply and an exogenous interest rate over the period 2000Q1 to 2018Q4. In short, these results are clearly compatible with the post-Keynesian hypothesis that rejects the orthodox view of exogenous money supply and concludes that money supply is endogenous. Therefore, the economic growth can be boost via Endogenous money supply hypothesis that is loans create deposits and deposits create reserves and creditworthiness determines the loans, i.e. banks look for good borrowers not for reserves to issue loans.

Keywords: Endogenous money supply hypothesis, Co-integration, causality, Saudi Arabia, public expenditures, economic growth.
JEL classification codes: B22, C20, C23, C13, D2, D24, E11