Reintegrating Money into Monetary Policy.

The article focuses on the role of monetary aggregates in monetary policy, particularly in the context of the Bank of Canada’s inflation targeting (IT) framework. It argues that monetary aggregates have been justifiably neglected when inflation is stable, inflation expectations are well anchored, and the central bank consistently hits its target, making the inflation target itself the best predictor of future inflation. However, during periods of high inflation, such as the post-2021 pandemic environment, monetary aggregates regain predictive power for inflation and should be reintegrated into policy analysis. The article also emphasizes that interpreting monetary data requires caution because the velocity of money circulation depends on expectations about the permanence of monetary shocks, and that low nominal interest rates may misleadingly signal the stance of monetary policy.