M. Friedeman in 1956, View: Money is a substitute for all assets
BoE is responsible, MTFS(medium term)
1. Interest rate policy-investments non-marginal, Gov. debt increases, hot money(I abroad), politically unpopular, people borrow anyway. Chancellor didnt raise interest in 95. Key is the base rate(Treasury bills, LDMA). Raising makes thru exchange rate Imp. cheap-lowers prices.
2. Liquidity ratios - thru credit creation, controls investment, lowered in recession
Bank use securities as liquid assets
3. Control of money supply-hard to determine, V changes.
a. Direct cash balance effect (besides I).
b. D for money is I inelastic
c. Investment is I elastic
4. Open-market operations (91Treasury), from BoE, creates new money. BoE tries to make banks short of money. Inflationary, but doesn't increase Nat. debt much.
5. Funding-gilts, expensive, borrowing existing money from public
6. The issue of notes and coins
7. Special directives and deposits (damage relationships, effective)
8. Moral suasion (in USA)
9. EMU directives-convergence criteria
10. exchange rate
Velocity of Mo is steady 25 coz black economy grows in recession.
Change in M4=PSBR-debt sales+dLending to private
M Targets were exceeded(D for loans inelastic, hot money, hard to measure)