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Money in the Bank (of Canada)

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  • David Longworth

Abstract

With the demise of monetary targeting over the past 20 years in many major countries, the question has arisen as to whether central banks should look at money at all when formulating and conducting monetary policy. The author argues that the mainstream paradigm, which gives no useful role to money, is unlikely to capture the full richness of the transmission mechanism. Moreover, on the face of it, the empirical evidence in Canada is inconsistent with the mainstream paradigm. For these reasons, the Bank of Canada devotes significant attention in its research, analysis, and communication to the behaviour of monetary aggregates and their possible role in the transmission mechanism. This report describes the use of the aggregates as of the end of 2001.

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File URL: http://www.bankofcanada.ca/en/res/tr/2003/tr93.pdf
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Bibliographic Info

Paper provided by Bank of Canada in its series Technical Reports with number 93.

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Length: 37 pages
Date of creation: 2003
Date of revision:
Handle: RePEc:bca:bocatr:93

Contact details of provider:
Postal: 234 Wellington Street, Ottawa, Ontario, K1A 0G9, Canada
Phone: 613 782-8845
Fax: 613 782-8874
Web page: http://www.bank-banque-canada.ca/

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Keywords: Monetary aggregates; Transmission of monetary policy;

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References

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  1. Barnett, William A., 1980. "Economic monetary aggregates an application of index number and aggregation theory," Journal of Econometrics, Elsevier, vol. 14(1), pages 11-48, September.
  2. Rotemberg, J.J. & Driscoll, J.C. & Poterba, J.M., 1991. "Money, Output, and Prices: Evidence from a New Monetary Aggregate," Working papers 585, Massachusetts Institute of Technology (MIT), Department of Economics.
  3. Lawrence J. Christiano & Massimo Rostagno, 2001. "Money Growth Monitoring and the Taylor Rule," NBER Working Papers 8539, National Bureau of Economic Research, Inc.
  4. Coenen, Günter & Levin, Andrew T. & Wieland, Volker, 2001. "Data uncertainty and the role of money as an information variable for monetary policy," Working Paper Series 0084, European Central Bank.
  5. Ireland, Peter N, 2004. "Money's Role in the Monetary Business Cycle," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(6), pages 969-83, December.
  6. Freedman, C, 1983. "Financial Innovation in Canada: Causes and Consequences," American Economic Review, American Economic Association, vol. 73(2), pages 101-06, May.
  7. David Longworth & Joseph Atta-Mensah, 1995. "The Canadian Experience with Weighted Monetary Aggregates," Econometrics 9511001, EconWPA.
  8. Michael Dotsey & Carl D. Lantz & Lawrence Santucci, 2000. "Is money useful in the conduct of monetary policy?," Economic Quarterly, Federal Reserve Bank of Richmond, issue Fall, pages 23-48.
  9. Friedman, Benjamin M & Kuttner, Kenneth N, 1992. "Money, Income, Prices, and Interest Rates," American Economic Review, American Economic Association, vol. 82(3), pages 472-92, June.
  10. Sharon Kozicki, 2001. "Why do central banks monitor so many inflation indicators?," Economic Review, Federal Reserve Bank of Kansas City, issue Q III, pages 5-42.
  11. Galbraith, John W. & Tkacz, Greg, 2000. "Testing for asymmetry in the link between the yield spread and output in the G-7 countries," Journal of International Money and Finance, Elsevier, vol. 19(5), pages 657-672, October.
  12. Serletis, Apostolos & King, Martin, 1993. "The role of money in Canada," Journal of Macroeconomics, Elsevier, vol. 15(1), pages 91-107.
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Cited by:
  1. David Laidler, 2004. "Woodford and Wicksell on Interest and Prices The Place of the Pure Credit Economy in the Theory of Monetary Policy," University of Western Ontario, Economic Policy Research Institute Working Papers 20045, University of Western Ontario, Economic Policy Research Institute.
  2. T.K. Rymes, 2004. "Modern Central Banks Only Have Real Effects?," Carleton Economic Papers 04-14, Carleton University, Department of Economics.
  3. Céline Gauthier & Fu Chun Li, 2006. "Linking Real Activity and Financial Markets: The Bonds, Equity, and Money (BEAM) Model," Working Papers 06-42, Bank of Canada.
  4. Kevin Clinton, 2006. "Wicksell at the Bank of Canada," Working Papers 1087, Queen's University, Department of Economics.
  5. Céline Gauthier & Fuchun Li, 2005. "Linking real activity and financial markets: the first steps towards a small estimated model for Canada," BIS Papers chapters, in: Bank for International Settlements (ed.), Investigating the relationship between the financial and real economy, volume 22, pages 253-72 Bank for International Settlements.
  6. Chris Bloor & Chris Hunt & Tim Ng & Hamish Pepper, 2008. "The use of money and credit measures in contemporary monetary policy," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 71, March.

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