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Reintegrating Money into Monetary Policy

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  • Steve Ambler

Abstract

Monetary aggregates now play no role in the Bank of Canada's monetary policy analysis or in its communication to the public. This article shows that ignoring monetary aggregates is justifiable when the central bank is on average hitting its target, when inflation is stable, and when inflation expectations are well anchored. In this case, the inflation target itself is the only reliable predictor of inflation at a suitable horizon. However, in periods of high inflation such as we have experienced since 2021, money contains information about the evolution of inflation that is dangerous to ignore. Nevertheless, care needs to be exercised in interpreting this information, because the velocity of circulation of money is endogenous to expectations about the permanence of monetary shocks.

Suggested Citation

  • Steve Ambler, 2024. "Reintegrating Money into Monetary Policy," Canadian Public Policy, University of Toronto Press, vol. 50(S1), pages 62-72, May.
    • Handle: RePEc:cpp:issued:v:50:y:2024:i:s1:p:62-72
    DOI: 10.3138/cpp.2023-050
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