Search

The paper is concerned with the question of the appropriate variable that the central bank should use to measure its influence on aggregate demand. More specifically, in the pursuit of its goal to stabilise the economy, what should be the indicator of monetary policy - a price variable such as a market interest rate or a quantity variable such as the growth in the money supply? This question is of interest as the monetary indicators or “guide” variables frequently appear to give conflicting signs with respect to the direction of influence of the monetary policy actions on the economy. The author evaluates the performance of five monetary indicators: a short term market rate of interest, a monetary full employment rate of interest, the money supply, the neutralised money supply and the monetary base. The current popular monetary policy indicators are first statistically reexamined, before he criteria used to evaluate the indicators are defined. The estimation procedure employed is then indicated and the statistical results presented. The results suggest that the market rate of interest is the poorest indicator, while the observed money stock and the monetary base are the most reliable. JEL: E52, E58, E51

The most important instrument at the disposal of monetary authorities for the control of credit and the achievement of economic policy objectives consists in the regulation of the quantity of the monetary base. The present paper attempts to define the concept of monetary base, in general and in the Italian system, and then, by way of some econometric analysis, tries to estimate the effects of variations in the amount of monetary base on the level of interest rates and on the amount of credit. The empirical analysis is meant to be a test of the ways through which monetary base affects the amount of credit and interest rates, rather than a complete analysis of the behaviour of the demand for monetary base by the public and of the factors which influence the demand and supply of credit. JEL: E43, E51, E52

The work is concerned with the relationship between the monetary base and the quantity of money in Italy. The objective is not to develop a detailed description of the monetary base for Italy, but rather to explain in simple terms how the monetary base is related to bank deposits and money, and how changes in required reserve ratios have an impact on deposit determination in an equivalent way to changes in the monetary base that result from purchases of securities or foreign exchange by the monetary authorities. Building on this exposition, the paper shows that the method that the Bank of Italy uses to adjust the monetary base for required reserve ratio changes is incorrect. JEL: E51, E58