Financial Innovation and the Control of Monetary Aggregates: Some Evidence from Canada [report]

Robert Lucas
1983 unpublished
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.
more » ... 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.
doi:10.3386/w1157 fatcat:xzljznrqvnf3tfqkinnf6vr2n4