David Beckworth wrote a response to me (and David R. Henderson) on the Canadian budget turnaround in the 1990s. In this Mises CA post I summarize the debate and then reconcile Beckworth’s position and mine.
The apparent contradiction was that (a) I had shown stagnant growth in the Bank of Canada’s assets in the period when the budget cuts kicked in, but (b) Beckworth showed an apparent one-shot surge in the B of C’s monetary base in 1994. What’s the deal?
It turns out that the Bank of Canada phased out reserve requirements from 1992 – 1994, and that’s what’s going on. I have a chart that makes this crystal clear. I also comment on how this reconciliation affects the broader debate.