Money Supply and Money Demand: An Econometric Analysis for Canada

MONEY INCOME Y can be expressed as a product of a money stock M and a money velocity v. In turn the money stock can be ex^ pressed as a product of a monetary base B and a money supply multiplier m. Combining these yields the quantity-theory-type expression Y = vmB. Interpreted as an identity, this equation automatically yields a value for vm once Y and B are specified. With the money supply defined as the monetary base, m equals unity and the product mv (= v) is simply the income velocity of the monetary base. With a more extended definition of money the money supply multiplier assumes a value greater than unity but velocity declines proportionally, smce the product mv is constant for given B and Y. This simple but broadly encompassing equation provides the framework within which this paper proceeds. Specifically, we intend (a) to investigate the determinants