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Passive Money, Active Money, and Monetary Policy

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Abstract

This article by the Bank's visiting economist examines the role of money in the transmission of monetary policy. Professor Laidler argues against the view of money as a passive variable that reacts to changes in prices, output, and interest rates but has no direct causative effecton them. He maintains that the empirical evidence supports the view of money playing an active role in the transmission mechanism. While he agrees that individual monetary aggregates can be difficult to read because of instabilities in the demand-for-money function, he argues that monetary aggregates, particularly those relating to transactions money, should have a more significant place in the hierarchy of policy variables that the Bank considers when formulating monetary policy.

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Bibliographic Info

Article provided by Bank of Canada in its journal Bank of Canada Review.

Volume (Year): 1999 (1999)
Issue (Month): Summer ()
Pages: 15-25

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Handle: RePEc:bca:bcarev:v:1999:y:1999:i:summer99:p:15-25

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Cited by:
  1. Jan Korda, 2010. "A Comparison of New Consensus as a Theoretical Framework of Inflation Targeting with Post-Keynesian Economics," Politick√° ekonomie, University of Economics, Prague, vol. 2010(1), pages 92-104.
  2. Ramdane Djoudad & Jack Selody & Carolyn Wilkins, 2005. "Does Financial Structure Matter for the Information Content of Financial Indicators?," Working Papers 05-33, Bank of Canada.
  3. Stracca, Livio, 2007. "Should we take inside money seriously?," Working Paper Series 0841, European Central Bank.
  4. Claudio Borio & Haibin Zhu, 2008. "Capital regulation, risk-taking and monetary policy: a missing link in the transmission mechanism?," BIS Working Papers 268, Bank for International Settlements.
  5. Jan Korda, 2011. "Monetary Disequilibrium in the Theory of Endogenous Money," Politick√° ekonomie, University of Economics, Prague, vol. 2011(5), pages 680-705.
  6. W A Razzak, 2001. "Money in the era of inflation targeting," Reserve Bank of New Zealand Discussion Paper Series DP2001/02, Reserve Bank of New Zealand.
  7. Takeshi Kimura & Hiroshi Kobayashi & Jun Muranaga & Hiroshi Ugai, 2003. "The effect of the increase in the monetary base of Japan's economy at zero interest rates: an empirical analysis," BIS Papers chapters, in: Bank for International Settlements (ed.), Monetary policy in a changing environment, volume 19, pages 276-312 Bank for International Settlements.
  8. Piti Disyatat, 2008. "Monetary policy implementation: Misconceptions and their consequences," BIS Working Papers 269, Bank for International Settlements.

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