Money Growth Variability and Money Supply Interdependence Under Interestrate Control: Some Evidence for Canada

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.