AN APPROACH TO TEACHING MONETARY POLICY SINCE DEREGULATION

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Abstract

Since the full institution of deregulation the mechanics of how monetary policy operates has fundamentally changed. No longer can a change in stance be shown as shifts in the exogenously-determined money supply function in the Keynesian interest framework, because in competitive banking systems the money supply process is fully endogenous. Money endogeneity correctly suggests a reinterpretation of the vertical money supply function. A vertical money supply function drawn against bond yields does not automatically mean exogeneity. Monetary policy is best shown as shifts in the money demand function.

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