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Money Growth Variability and Money Supply Interdependence Under InterestRate Control: Some Evidence For Canada

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  • Michael D. Bordo
  • Ehsan U. Choudhri
  • Anna J. Schwartz

Abstract

Canada, like many countries, has recently experienced difficulties in achieving money growth stability and money supply independence. Based on the buffer-stock view of money-holding as well as the credit market approach to the money supply, this paper suggests that the problems have arisen from the Bank of Canada suse of an interestrate control mechanism.The paper argues that: (1) The short-run behavior of Canadian money grow this influenced by demand shifts in the Canadian credit market.(2)Movements in U.S. interest rates relative to the controlled Canadian interest rates are a key source of these shifts.The paper presents evidence on Canadian money supply and demand functions consistent with the foregoing explanation.

Suggested Citation

  • Michael D. Bordo & Ehsan U. Choudhri & Anna J. Schwartz, 1984. "Money Growth Variability and Money Supply Interdependence Under InterestRate Control: Some Evidence For Canada," NBER Working Papers 1480, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:1480 Note: IFM
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    References listed on IDEAS

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    1. Carr, Jack & Darby, Michael R., 1981. "The role of money supply shocks in the short-run demand for money," Journal of Monetary Economics, Elsevier, vol. 8(2), pages 183-199.
    2. Robert E. Lucas, Jr., 1983. "Financial Innovation and the Control of Monetary Aggregates: Some Evidence from Canada," NBER Working Papers 1157, National Bureau of Economic Research, Inc.
    3. Rudiger Dornbusch, 1982. "Flexible Exchange Rates and Interdependence," NBER Working Papers 1035, National Bureau of Economic Research, Inc.
    4. Kevin Clinton, 1973. "The Demand for Money in Canada, 1955-70: Some Single-Equation Estimates and Stability Tests," Canadian Journal of Economics, Canadian Economics Association, vol. 6(1), pages 53-61, February.
    5. Stephen S. Poloz, 1980. "Simultaneity and the Demand for Money in Canada," Canadian Journal of Economics, Canadian Economics Association, vol. 13(3), pages 407-420, August.
    6. Bordo, Michael D & Choudhri, Ehsan U, 1982. "Currency Substitution and the Demand for Money: Some Evidence for Canada," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 14(1), pages 48-57, February.
    7. W. R. White, 1979. "Alternative Monetary Targets and Control Instruments in Canada: Criteria for Choice," Canadian Journal of Economics, Canadian Economics Association, vol. 12(4), pages 590-604, November.
    8. MacKinnon, James G. & Milbourne, Ross D., 1984. "Monetary anticipations and the demand for money," Journal of Monetary Economics, Elsevier, vol. 13(2), pages 263-274, March.
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