Financial Innovation and the Control of Monetary Aggregates: Some Evidence from Canada
This paper presents an empirical test of the proposition that control of a monetary aggregate will generate a rise in its velocity.The test is carried out utilizing the Canadian experience of controlling Ml growth from 1975:3 to 1982:3. Section One of the paper presents evidence of the instability of the Canadian demand from Ml money since 1975:3. Section Two develops a specific form of the proposition which emphasizes the role of asset substitution between classes of chartered bank deposits. A relative asset demand equation is derived from a wealth maximization model subject to a technological transactions constraint and this equation is estimated from 1961 through 1982.The results lend support to the proposition that central bank control of Ml generated a rise in Ml velocity.
|Date of creation:||Jun 1983|
|Date of revision:|
|Publication status:||published as Lucas, Robert E. "Financial Innovations and the Control of Monetary Aggregates: The Canadian Experience," Western Economic Review, Vol. 4, No. 4, December 1985.|
|Contact details of provider:|| Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.|
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- Freedman, C, 1983. "Financial Innovation in Canada: Causes and Consequences," American Economic Review, American Economic Association, vol. 73(2), pages 101-06, May.
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- Thomas J. Sargent & Neil Wallace, 1981. "Some unpleasant monetarist arithmetic," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall.
- Moroney, John R & Wilbratte, Barry J, 1976. "Money and Money Substitutes: A Time Series Analysis of Household Portfolios," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 8(2), pages 181-98, May.
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