| Sumario: | In this article the author studies the effect of a shift in monetary policy away from a program of pegged bond yields, which occurred along with an important structural reform in the Canadian monetary sector, on the ability of the monetary authorities to use the general instruments of monetary control for short-run stabilization policy. Section I describes briefly the main characteristics of the Canadian monetary sector and the structural reform on which this study centers attention. Section II develops and estimates the parameters of those relationships necessary to test my hypothesis. In general it is found that, although the structural reform and the sharp accompanying change in monetary policy had no important effects on the demand function for money balances and in particular on the lag structure of this relation, it did, indeed, affect the formation of interest rate expectations in a way that makes it more difficult to use monetary control for cyclical stabilization, It is also argued that the Treasury-Federal Reserve accord may have had a similar effect in the U.S.
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