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Money in the Bank (of Canada)

Author

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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.

Suggested Citation

  • David Longworth, 2003. "Money in the Bank (of Canada)," Technical Reports 93, Bank of Canada.
  • Handle: RePEc:bca:bocatr:93
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    File URL: http://www.bankofcanada.ca/en/res/tr/2003/tr93.pdf
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    References listed on IDEAS

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    1. 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.
    2. Coenen, Gunter & Levin, Andrew & Wieland, Volker, 2005. "Data uncertainty and the role of money as an information variable for monetary policy," European Economic Review, Elsevier, vol. 49(4), pages 975-1006, May.
    3. Ireland, Peter N, 2004. "Money's Role in the Monetary Business Cycle," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(6), pages 969-983, December.
    4. Serletis, Apostolos & King, Martin, 1993. "The role of money in Canada," Journal of Macroeconomics, Elsevier, vol. 15(1), pages 91-107.
    5. 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.
    6. Rotemberg, Julio J & Driscoll, John C & Poterba, James M, 1995. "Money, Output, and Prices: Evidence from a New Monetary Aggregate," Journal of Business & Economic Statistics, American Statistical Association, vol. 13(1), pages 67-83, January.
    7. 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.
    8. David Longworth & Joseph Atta-Mensah, 1995. "The Canadian Experience with Weighted Monetary Aggregates," Econometrics 9511001, EconWPA.
    9. Lawrence J. Christiano & Massimo Rostagno, 2001. "Money Growth Monitoring and the Taylor Rule," NBER Working Papers 8539, National Bureau of Economic Research, Inc.
    10. 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.
    11. Friedman, Benjamin M & Kuttner, Kenneth N, 1992. "Money, Income, Prices, and Interest Rates," American Economic Review, American Economic Association, vol. 82(3), pages 472-492, June.
    12. Freedman, C, 1983. "Financial Innovation in Canada: Causes and Consequences," American Economic Review, American Economic Association, vol. 73(2), pages 101-106, May.
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    Citations

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    Cited by:

    1. 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.
    2. T.K. Rymes, 2004. "Modern Central Banks Only Have Real Effects?," Carleton Economic Papers 04-14, Carleton University, Department of Economics.
    3. Laidler, David, 2006. "Woodford and Wicksell on Interest and Prices: The Place of the Pure Credit Economy in the Theory of Monetary Policy," Journal of the History of Economic Thought, Cambridge University Press, vol. 28(02), pages 151-159, June.
    4. Céline Gauthier & Fu Chun Li, 2006. "Linking Real Activity and Financial Markets: The Bonds, Equity, and Money (BEAM) Model," Staff Working Papers 06-42, Bank of Canada.
    5. 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.
    6. Julien Champagne & Rodrigo Sekkel, 2017. "Changes in Monetary Regimes and the Identification of Monetary Policy Shocks: Narrative Evidence from Canada," Staff Working Papers 17-39, Bank of Canada.
    7. Kevin Clinton, 2006. "Wicksell at the Bank of Canada," Working Papers 1087, Queen's University, Department of Economics.

    More about this item

    Keywords

    Monetary aggregates; Transmission of monetary policy;

    JEL classification:

    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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