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Monetary base endogeneity and the new procedures of the asset-based Canadian and American monetary systems

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  • MARC LAVOIE

Abstract

It is shown that asset-based financial systems, just like overdraft financial systems, rely on a fully endogenous supply of high-powered money, with central banks engaging essentially in "defensive" operations. This is demonstrated through an analysis of the Canadian monetary process, which is devoid of any reserve requirements, with the overnight rate closely gravitating around the target overnight rate. It is shown that the American process is no different, despite being less transparent. The main distinctness is that, in contrast to the Fed, the Bank of Canada knows with perfect certainty both its supply of and the demand for settlement balances.

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Bibliographic Info

Article provided by M.E. Sharpe, Inc. in its journal Journal of Post Keynesian Economics.

Volume (Year): 27 (2005)
Issue (Month): 4 (July)
Pages: 689-709

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Handle: RePEc:mes:postke:v:27:y:2005:i:4:p:689-709

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Web page: http://mesharpe.metapress.com/link.asp?target=journal&id=109348

Related research

Keywords: channel system; clearing balances; defensive operations; high-powered money; overnight rate; target interest rate;

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Cited by:
  1. Jafar HAGHIGHAT, 2011. "How Much Control Dose Central Bank of Iran over Money Supply?," Journal of Knowledge Management, Economics and Information Technology, ScientificPapers.org, vol. 1(7), pages 29, December.
  2. Robert Pollin, 2008. "Considerations on Interest Rate Exogeneity," Working Papers wp177, Political Economy Research Institute, University of Massachusetts at Amherst.
  3. Nayan, Sabri & Ahmad, Mahyudin & Kadir, Norsiah & Abdullah, Mat Saad, 2013. "Post Keynesian Endogeneity of Money Supply: Panel Evidence," MPRA Paper 48716, University Library of Munich, Germany.
  4. Boermans, Martijn Adriaan & Moore, Basil J, 2008. "Locked-in and Sticky Textbooks: Mainstream Teaching of the Money Supply Process," MPRA Paper 14845, University Library of Munich, Germany, revised Apr 2009.
  5. Eric Tymoigne, 2006. "The Minskyan System, Part III: System Dynamics Modeling of a Stock Flow-Consistent Minskyan Model," Economics Working Paper Archive wp_455, Levy Economics Institute.

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