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Abstract. This paper examines the issue of simultaneous equations bias with respect to the Canadian demand for money function. It is argued that the extent of bias in an ordinary least squares estimate of the function ought to depend upon the policy regime under which the money market is operating. Empirical support for this hypothesis is found through a comparison of recursive OLS and IV estimates. The results indicate that the bias, although typically not extensive, may have been at least partly responsible for divergences from monetary growth targets in the recent past. [ABSTRACT FROM AUTHOR]

Abstract. The Bank of Canada influences changes in short-term interest rates by supplying quantities of excess cash reserves to the chartered banks in amounts either insufficient or more than sufficient to meet the quantity demanded. In this study demand functions for excess cash reserves are estimated for each of the five largest Canadian banks over the period 1971 to 1977. Daily data are used to correspond to the daily cash management horizon which characterizes the individual bank's behaviour. The empirical results generally confirm the relevance of the model of bank behaviour suggested in an earlier article by Dingle, Sparks and Walker. Attention is paid to the implications of the results for the debate concerning the relative merits of short-term interest rates and the monetary base as instruments for controlling the money supply. [ABSTRACT FROM AUTHOR]