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Since the full institution of deregulation the mechanics of how monetary policy operates has fundamentally changed. No longer can a change in stance be shown as shifts in the exogenously‐determined money supply function in the Keynesian interest framework, because in competitive banking systems the money supply process is fully endogenous. Money endogeneity correctly suggests a reinterpretation of the vertical money supply function. A vertical money supply function drawn against bond yields does not automatically mean exogeneity. Monetary policy is best shown as shifts in the money demand function.

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