Monetary base control: A useful alternative for the Netherlands?

Summary

This article deals with the question of whether monetary management through base control is desirable and feasible for the Netherlands. In spite of the analytical appeal of the monetary base framework, the answer is definitely no for the following reasons: First, it is doubtful whether control of the sources of base money creation will perform better than the present system of credit ceilings. Second, the empirical estimates of this paper show a serious lack of stability in the relationship between money stock and base money and of the model to predict the money multiplier. Third, the operational value of the base model is also reduced by the openness of the Netherlands economy and the inherent measurement problems of the base. Fourth, it seems difficult to reconcile money market and foreign exchange market targets through base money control as a major monetary instrument.