The efficiency of monetary control and building society developments.

An analysis is made of the major factors determining financial innovation and financial change by building societies and banks, and the particular innovations introduced are examined. The effects of these institutional developments upon the growth rates of the broad monetary aggregates relative to nominal income are analysed.Specific attention is paid to the personal sector's motives for holding money and particularly the willingness to hold interest-bearing money balances at building societies and banks. Special consideration is placed upon the abolition of the building societies' cartel, the removal of portfolio monetary controls on the retail banks and the entry of thebanks into the mortgage market. The effects of the abolition of the cartel on the effectiveness of monetary control are divided into finite stock effects and more continuing effects. The stock effects of credit liberalization upon the growth of the broad monetary aggregates and the confusion caused as to the interpretation of monetary conditions are analysed, and aneconometric evaluation of the stock effects of credit liberalization on the personal sector's level of debt is carried out. In terms of more continuing effects it is hypothesized that the abolition of the cartel will have reduced the interest elasticity of the demand for money, but increased the interest elasticity of consumers' expenditure. These hypotheses are evaluated using standard error-correction models and co-integrating models of the demand for money and consumers' expenditure.