adverse public opinion, and the external constraint posed by the fixed exchange rate. while the commission agreed with some of these concerns, it nonetheless argued that such considerations should not stand in the way of a vigorous monetary policy. the porter report accepted, however, the description put forward by the bank of canada of the way that monetary policy affected the operation of chartered banks. the provision of cash reserves by the bank of canada would bring about changes in chartered bank holdings of liquid assets, which over time would affect the banks ’ willingness to make loans. however, when quick results were deemed necessary, the bank felt that resort to direct limits on bank lending would be justified. on the several occasions that moral suasion had been employed in the 1950s, it had seemed to work. the commission showed little enthusiasm for such intervention. it argued that controls impaired market efficiency, were discriminatory, and were of diminishing effectiveness over time. there was also a concern about their clumsiness, especially the delays in making instructions effective in bank branches across the country, and possible misinterpretation of their eventual withdrawal. despite all that was said and done about the credit conditions approach to monetary policy, empirically any significant effects seem to have been confined to a few brief periods of moral suasion and the impact on residential construction of the lags in changing the administered nha mortgage rate and the interaction between this rate and the 6 per cent bank lending rate ceiling. the available empirical evidence did not indicate that changes in credit conditions systematically had much effect on aggregate demand. econometric tests reported in the commission ’ s working papers show no significant effects on consumption and investment bank of canada submissions, ii, para. 11. bank of canada submissions, ii, paras. 13 and 14. spending from interest rate or credit variables. 18 this seems to have been because monetary policy actions had not been very aggressive. these results confirmed the conventional belief that ordinary monetary policy actions were not very effective. and this was a major reason for the insistence on policy packages with the right mix of fiscal and monetary policy, plus coordinated debt management policy, and on the possible need for moral suasion and / or some sort of direct controls on bank lending. 5. the role of debt management i have noted that the package of macroeconomic policies advocated during the 1960s tended to include debt management policy along with fiscal and monetary policies. certainly, central bankers of the day regarded debt management policy as an integral part of macroeconomic policy

fixed exchange rate for the dollar, the commission recommended that domestic considerations should prevail, and that the exchange rate parity be allowed to change. but it did not reopen the debate over the exchange rate, which had been a topic of heated political controversy earlier in the decade. by 1964, at the time the report was published, the view of the canadian authorities was very much that the fixed exchange rate system was appropriate, and that the existing parity was in the right range. in part these views stemmed from theories of inflation that emphasized non - monetary factors, e. g. cost push, union or seller power, demand shift, struggle for income, and so on. exchange controls had been eliminated in the early 1950s. the canadian dollar would remain fixed until june 1970. robert mundell was at that very time making the contributions that would form the standard modern model for open - economy policy analysis. see mundell ( 1961, 1962, and 1963 ). 4. monetary policy instruments and the transmission mechanism both the porter commission and the bank in its submissions described the transmission of monetary policy actions in terms of their effects on credit conditions. by credit conditions they meant “ the whole range of terms and conditions affecting borrowing and lending and the purchase and sale of financial assets. ” 16 this would include, most importantly, interest rates, but also standards of creditworthiness, collateral, repayment periods, and other terms and conditions. in general, whereas the bank of canada17 stressed the importance of availability effects, the porter report was more inclined to give a central place to interest rates. one of the reasons why the bank of canada put so much emphasis on credit availability at that time was because, even apart from the 6 per cent bank loan rate ceiling, it believed that wide fluctuations in interest rates were not feasible. indeed, historical experience was of a quite narrow range of interest rate movements. for example, the prime lending rate of the chartered banks, a key rate in the transmission mechanism, had never been lower than 4. 5 per cent, while the maximum legal rate was 6 per cent – a range of 150 basis points. there simply had not been much scope for borrowing costs to vary. as outlined by the commission and the bank, there were a number of possible reasons for this belief that wider movements in interest rates were not feasible : the possibility of instrument instability ( with interest rates swinging abruptly ), the potential effect of sharp changes in security prices on the stability of financial institutions,