David Laidler - Latest

• December 18, 2005

  Free Banking and the Bank of Canada

  Bank of Canada Review - Winter 2005-2006 David Laidler

  Economists in the nineteenth century spent considerable time discussing the merits of a free-banking system, in which each commercial bank would be able to issue its own notes and deposits, subject to a convertibility requirement backed by its own gold reserves. Such a system, the proponents argued, would be able to deliver price-level stability yet be flexible enough to withstand the vicissitudes of the business cycle. Moreover, there would be no need for central banks. While this idea has received less attention in recent years, some economists still put it forward as a practical alternative to the current system. Laidler suggests that the centralizing tendencies in banking would inevitably undermine competition within a free-banking system, and lead to the natural emergence of one dominant bank. Other developments in the twentieth century, most notably the demise of the gold standard and widespread agreement that governments should play a determining role in setting monetary policy goals, have also limited the practicality of such a system. Laidler examines the Bank of Canada's history from the free-banking perspective and concludes that the current system of inflation targeting provides a much better anchor for orderly price-level behaviour than the free-banking system's convertibility could ever guarantee.

  Content Type(s): Publications, Bank of Canada Review articles Topic(s): Monetary policy framework
• August 14, 1999

  Passive Money, Active Money, and Monetary Policy

  Bank of Canada Review - Summer 1999 David Laidler

  This article by the Bank's visiting economist examines the role of money in the transmission of monetary policy. Professor Laidler argues against the view of money as a passive variable that reacts to changes in prices, output, and interest rates but has no direct causative effect on them. He maintains that the empirical evidence supports the view of money playing an active role in the transmission mechanism. While he agrees that individual monetary aggregates can be difficult to read because of instabilities in the demand-for-money function, he argues that monetary aggregates, particularly those relating to transactions money, should have a more significant place in the hierarchy of policy variables that the Bank considers when formulating monetary policy.

  Content Type(s): Publications, Bank of Canada Review articles Topic(s): Monetary aggregates, Monetary policy transmission

• The Quantity of Money and Monetary Policy

  Staff Working Paper 1999-5 David Laidler

  The relationships among the quantity theory of money, monetarism and policy regimes based on money-growth and inflation targeting are briefly discussed as a prelude to an exposition of alternative views of money's role in the transmission mechanism of monetary policy. The passive-money view treats the money supply as an endogenous variable that plays no role […]

  Content Type(s): Staff research, Staff working papers Topic(s): Monetary aggregates, Monetary policy framework, Monetary policy transmission JEL Code(s): E, E5, E51, E52

• The Exchange Rate Regime and Canada's Monetary Order

  Staff Working Paper 1999-7 David Laidler

  It is a mistake to debate the merits of alternative exchange rate regimes for Canada independently of other features of the monetary order. A coherent order requires a well-defined goal for monetary policy, one that the authorities are capable of achieving, and that anchors private sector expectations. For it to be liberal, the relevant authorities […]

  Content Type(s): Staff research, Staff working papers Topic(s): Exchange rates, Monetary policy framework JEL Code(s): E, E5, E52, F, F3, F31