Working Paper: NBER ID: w1480
Authors: 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.
Keywords: Money Growth; Interest Rate Control; Monetary Policy; Canada
JEL Codes: E52; E58
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| US interest rates (E43) | demand for domestic credit (E51) |
| demand for domestic credit (E51) | Canadian money growth (N12) |
| US interest rates (E43) | Canadian money growth (N12) |
| interest rate policy (E43) | demand for money (E41) |
| foreign shocks (F69) | demand for money (E41) |
| domestic monetary policy (E52) | demand for money (E41) |