Monetary Base and Money Stock in Canada

In this report, the authors consider some Canadian evidence related to the control of the money supply. At issue is the relative efficacy of monetary-base control versus a method of control wherein short-term interest rates are adjusted to keep the money supply on target. This study examines certain problems involved in the implementation of both types of money-supply control in the context of Canadian institutional arrangements. Two basic issues are investigated empirically: causality and stability. Finally, representative money-multiplier and money-demand equations are estimated for Canada and simulations are presented in order to compare their relative forecasting abilities.