No it isn't.
History might appear to be just one damn fact after another, but it's the job of social scientists to make sense of those facts, and try to explain the endogenous facts in terms of (relatively speaking) exogenous facts.
Americans might be forgiven for thinking that monetary policy is just one damn interest rate after another, because nobody understands what the Fed is trying to do at any longer horizon. Canadians have less of an excuse. We know what the Bank of Canada is trying to do, because it tells us. Like many other modern central banks, the Bank of Canada targets inflation. The Bank of Canada does not have an interest rate target, except for temporary 6 week periods between Fixed Announcement Dates (and even then, it will change the interest rate target between FADs if it really needs to). It targets 2% CPI inflation. The Bank of Canada's interest rate "target" is an endogenous variable, that can only be understood as determined by the 2% inflation target plus what is happening in the rest of the economy. The Canadian money supply can also only be understood as determined by the 2% inflation target plus what is happening in the rest of the economy.
"The stock of money is demand-determined at the interest rate targeted by the central bank."
No it isn't. But I can understand someone saying that if they also thought that monetary policy is just one damn interest rate after another. It doesn't make sense to say that if you think of the interest rate as an endogenous variable that follows from an exogenous inflation target. (Actually, I think it wouldn't make sense to say that even if the interest rate were exogenous, but then I'm a very heterodox disequilibrium monetarist who has weird beliefs about hot potato money and the law of reflux being wrong, and I'm just going to pretend I'm an orthodox New Keynesian for this post).
Whether a model is useful or not depends on what question you are asking. It depends on your perspective.
Zoom in for a close-up. Suppose you aren't interested in anything that lasts more than 6 weeks. Assuming the central bank has an exogenous interest rate target is then a good approximation to reality. The Bank of Canada really doesn't like to change the overnight rate target unless something big happens, and the actual overnight rate stays fairly close to target, so the approximation isn't bad, as long as we are talking about small changes.
Suppose the demand for bank loans increases. It doesn't matter why. And commercial banks satisfy that demand. The stock of money in circulation increases as a result. It doesn't matter if the quantity of reserves and currency demanded increases too, because the central bank will allow those stocks to increase by an amount equal to the quantity demanded. Does this mean the stock of money is demand-determined? Absolutely not, because the demand for bank loans is a flow demand for loans, and the demand for money is a stock demand for the medium of exchange, and those ain't the same thing, and just because someone wants to accept money in exchange for an IOU doesn't mean he wants to hold a bigger stock of money, it means he probably wants to spend it instead, so there's a disequilibrium hot potato process in which desired expenditure of money exceeds expected receipts of money and…..Ooops! Sorry! I said I was going to pretend I'm an orthodox economist, so yes, the stock of money is, ahem, demand-determined.)
Now zoom out. Let's take a longer, wider perspective.
Suppose the demand for bank loans increases. It does now matter why. Suppose it's due to increased demand for investment. With a fixed inflation target the rate of interest will have to increase, because if inflation was on target before it won't stay on target if desired investment increases and increases aggregate demand too. What happens to the stock of money? It will probably decrease. Take the standard assumption that the demand for money depends positively on the price level and real income, and negatively on interest rates. Then the rise in interest rates means a lower stock of money demanded, and hence a lower stock of money.
Now let's zoom right in very very close. Lets get right down to machine language, and ignore the higher-level programming languages. What do central banks really really control? They control their own balance sheets. And they can communicate promises about how they will change their balance sheets in future conditional on what happens. (OK, some central banks can control required reserve ratios, but I'm going to ignore them here.) If you really want to get down to the nitty gritty, that's it. Central banks control their own current and promised future balance sheets. Any influence they have on interest rates, and inflation, and anything else, all ultimately derives from changing the size and composition of their own balance sheets. Targeting interest rates is not what central banks really really do, for you people of the concrete steppes. Interest rate targets are merely a communications device (and a bad one at that), that some central banks sometimes use (see Paul Krugman) as an intermediate step between the machine language of balance sheet quantities and the ultimate target of inflation (or whatever). Nobody should confuse a communications device for ultimate reality.
Worthwhile Canadian Initiative 
It’s over. Royal Mint, digital currency. http://developer.mintchipchallenge.com/
Nick,
You’re right, I think.
I was thinking banks could maybe lend a multiple of capital. Like if the capital ratio was 20 percent, for every 100 dollars in capital the bank could create 800 in loans, but really they could only make 500 in loans, right?
And banks can’t create capital out of thin air, right? They have to raise it through profits or investors? So a capital constrained bank in bad economic times may have trouble raising capital? Even if they’re able to game this system in real life, at least in theory a regulated bank could be unable to make loans. Perhaps (big?) banks are (usually) always able to find willing investors?
Too Much Fed,
That Bill Mitchell link was the type of thing I was looking for, thanks. Interesting about Dean Baker. (I’m not sure Baker is saying exactly what Mitchell thinks, but I don’t know.) I’m familiar with the loans creat deposits/savings aren’t required argument.
(I think Baker is just saying the Fed can lower rates by adding reserves to the system. His comment is so brief, though, it’s easy to interpret a number of ways.)
K
1. Woodford’s is not the only NK model – he is an extreme in not modelling money. Svensson/Taylor/Bernanke/Kiyotaki/Gertler all have different models that have money, and all are New Keynesians.
2. Paying interest on reserves has nothing to do with the effectiveness of reserves or liquidity constraints – it is a way to shift interest rates without engaging in open market operations. In the US, due to 0 IoR historically, all of the fed funds rate comes from what Kashyap/Stein call the ysr (FFR = IoR + ysr) – the ‘convenience yield of excess reserves’ – and quantity operations (which affect ysr) and rate targets become completely joint at the the hip and indistinguishable from each other. Hence all the talking past each other that you see between monetarists and MMT.
In the future you will see the Fed manipulate its balance sheet somewhat independently of its rate target due to the flexibility afforded by an independent ysr once the IoR puts a floor on FFR. (this is also the case right now, but these are abnormal times, and the proper IoR should probably be -0.25%, not 0.25%). And then the theoretical differences and predictions made by MMT/ monetarists will differ substantively.
e.g. adding to the base while holding IoR constant would be expansionary in the monetarist/neo-classical model while not so in the PK model, even when the IoR is say 5%.
“Woodford’s is not the only NK model – he is an extreme in not modelling money.”
No, he isn’t. The standard NK model has no “money supply.” The BoC, the BoE and the ECB all use NK models without any money in them as their principal macro guides. “NK” doesn’t mean some bunch of theorists who call themselves that. It’s a particular base model plus a large amount of variations. I’ve never seen anybody try to add the “money supply” but there is no reason you couldn’t strap it on the side if you wanted to. But it would be an internally irrelevant appendage.
I agree that paying interest on reserves is irrelevant to monetary policy (as is the quantity of reserves). Paying exactly the policy rate may lead to a breakdown of the collateral markets though since banks will fund from the Fed, which I don’t think is healthy.
“adding to the base while holding IoR constant would be expansionary in the monetarist/neo-classical model while not so in the PK model, even when the IoR is say 5%. ”
I totally agree, as does the NK model. PK and MM are totally different. Monetarists are the cause of all this pointless QE nonsense. What I’m saying is that the PKs and the NKs have very similar views on this: both believe that QE is a ridiculous distraction. What I don’t understand is why the PKs are averse to the standard NK model. What is it about it that they dislike?
anon, you’re welcome for the link.
I’m not sure what Dean Baker meant there either. At first glance, it doesn’t seem correct.
Capital ratio 20% and enforced. $100 of capital leads to a maximum of $500 of loans in this case.
“And banks can’t create capital out of thin air, right? They have to raise it through profits or investors?”
With a quick glance, I believe those two(2) are correct.