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Money Talks – What Does it Say About Recovery? C.D. Howe Institute

May 17, 2012

TORONTO, May 17, 2012 /CNW/ – Monetary authorities should keep an eye on
money growth in the economy to help stimulate and monitor the recovery,
according to a report released today by the C.D. Howe Institute. In
“Money Still Talks – Is Anyone Listening?” David Laidler,
Fellow-in-Residence at the Institute, makes the case for policymakers’
paying greater attention to the supply of money, to get a better fix on
the economy’s condition. “Money growth isn’t the only key measure to
watch, but it is unwise to ignore it,” commented Dr. Laidler, who is
Emeritus Professor of Economics at the University of Western Ontario.

Money growth, meaning the pace of expansion in the quantity of money
held by the public and readily accessible deposits at financial
institutions, is proving prescient in the current situation. “Money
growth has been signaling recovery in the US for about a year, and in
Canada for about six months. News for Europe and the UK is not as
encouraging,” said Professor Laidler. These divergent paths can be
traced to the timing and duration of so-called “quantitative easing” QE
measures, he said

While skeptics of QE will be inclined to attribute the recent surge of
US money growth and signs of recovery in its wake to coincidence, said
Laidler, advocates will suggest that QE’s first round in 2009 prevented
a collapse of the money supply like the one that turned the initial
downturn of 1929/30 into the Great Depression, and that its second
round is now promoting recovery.

Canada’s current recovery is still fragile, he said, but a recent
step-up in broad money growth is supporting it. The Bank of Canada
should take note and keep money growing at around 5 to 6 percent for a
while. This does not necessarily require that interest rates be held
constant and carries little risk of high inflation, he concluded.

For the report go to: http://www.cdhowe.org/money-talks—what-does-it-say-about-recovery-2/17764

SOURCE C.D. Howe Institute


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