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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.

Suggested Citation

  • Marc Lavoie, 2005. "Monetary base endogeneity and the new procedures of the asset-based Canadian and American monetary systems," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 27(4), pages 689-709.
  • Handle: RePEc:mes:postke:v:27:y:2005:i:4:p:689-709
    DOI: 10.1080/01603477.2005.11051462
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    Citations

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    Cited by:

    1. Robert Pollin, 2008. "Considerations on Interest Rate Exogeneity," Working Papers wp177, Political Economy Research Institute, University of Massachusetts at Amherst.
    2. Ibrahim Ethem Guney & Oguzhan Cepni, 2016. "Endogeneity of Money Supply : Evidence From Turkey," CBT Research Notes in Economics 1619, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
    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. 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.
    5. 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 1-29, December.
    6. repec:bla:metroe:v:68:y:2017:i:4:p:882-902 is not listed on IDEAS
    7. Grossmann-Wirth, V. & Vari, M., 2016. "Sortie de taux bas en situation d’excédent de liquidité : l’expérience de la Réserve fédérale américaine," Bulletin de la Banque de France, Banque de France, issue 206, pages 41-50.
    8. 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.
    9. Louis-Philippe Rochon & Sergio Rossi, 2011. "Monetary Policy Without Reserve Requirements: Central Bank Money as Means of Final Payment on the Interbank Market," Chapters,in: Credit, Money and Macroeconomic Policy, chapter 6 Edward Elgar Publishing.
    10. Azadeh Rahimi & Ba M. Chu & Marc Lavoie, 2017. "Linear and Non-Linear Granger Causality Between Short-Term and Long-Term Interest Rates: A Rolling Window Strategy," Metroeconomica, Wiley Blackwell, vol. 68(4), pages 882-902, November.
    11. Scott T. Fullwiler, 2013. "An endogenous money perspective on the post-crisis monetary policy debate," Review of Keynesian Economics, Edward Elgar Publishing, vol. 1(2), pages 171-194, January.

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