Date of Award


Document Type


Degree Name

Doctor of Philosophy (PhD)




The primary purpose of this study is to formulate, estimate and compare monetary policy reaction functions for the United Kingdom, West Germany, and Canada. For each country, the growth rate of the monetary base is estimated as a linear function of eight independent variables--the interest rate variable, the budget deficit variable, the wage rate variable, the price variable, the international reserves variable, the exchange rate variable, a trade balance variable and an economic activity variable (e.g., the output gap, the output ratio, or the unemployment rate variable). Alternative measures of a number of these variables are employed. The Final Prediction Error criterion in conjunction with the specific gravity criterion has been used to determine the lag length for each explanatory variable and the order in which independent variables enter the equations. Reaction functions, thus specified, are estimated using the Ordinary Least Squares and instrumental variables techniques. If preliminary results suggest the presence of serial correlation among residuals, estimates are obtained using the Cochrane-Orcutt iterative procedure for serial correlation correction. Restricted versions of the reaction functions are also estimated after dropping statistically insignificant variables from the fully specified reaction functions. The estimated reaction functions indicate that monetary policies in the United Kingdom and West Germany have been permanently affected by some external trade balance measure--the effective exchange rate in the former case and international reserves in the latter. The monetary base in Canada is affected by changes in the output gap, interest rate changes and budget deficits.