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Getting the Measure of Money: A Critical Assessment of UK Monetary Indicators

Getting the Measure of Money: A Critical Assessment of UK Monetary Indicators

Anthony J. Evans


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Book Details


How much money is circulating in the United Kingdom? The question sounds simple. In fact, it is notoriously difficult to answer, because what counts as money is not a straightforward matter. A variety of measures have been advanced, and they tell different stories about the changing supply of money in an economy. These differences are of more than merely academic interest, because measures of the money supply are inputs to the decisions of central banks. Wrong answers can lead to wrong actions, with potentially devastating economic effects. This book examines the measure of money and, in that light, the actions of the Bank of England in in the lead up to the 2008 financial crisis and its aftermath. It is essential reading for anyone interested in money, measures of its quantity, and the relationship between the money supply and the economic cycle.

Table of Contents

Section Title Page Action Price
Table 1\tNotes and Coin breakdown 31
Table 2\tMA data series and backdating methods 44
Table 3\tCPI vs PPI (input) 101
Table 4\tImpact summary 117
Figure 1\tM4 and M4ex, 1998–2009 (year-on-year % change) 10
Figure 2\tTrue Money Supply 20
Figure 3\tMA stock, 1990–2016 (£million) 28
Figure 4\tMA growth, 1991–2016 (year-on-year % change) 29
Figure 5\tMonetary aggregates, September 2014 (£million) 34
Figure 6\tMonetary aggregates, 2004–16 (£million) 35
Figure 7\tM3 and MA, 2004–16 (year-on-year growth rates) 36
Figure 8\tDivisia money, 2000–2016 (year-on-year % growth) 40
Figure 9\tBroad money velocity, 2007–10 (% change) 58
Figure 10\tPolicy uncertainty 72
Figure 11\tPrivate investment, 2007–16 (year-on-year % growth) 78
Figure 12\tInflation and price level (under inflation expectations) 84
Figure 13\tAugust 2006 fan chart 92
Figure 14\tAugust 2008 fan chart 93
Figure 15\tRPIX and CPI, 1997–2009 98
Figure 16\tCPI and PPI, May 1997–Dec 2009 (monthly data, % change from previous year). 100
Figure 17\tActual and multi-factor productivity norm CPI growth, 1997–2014 (annual data, % change from previous year) 113
Figure 18\tActual and productivity norm CPI level, 1997–2016 (quarterly data, 1997 = 100) 114
Figure 19\tActual and productivity norm CPI growth, 1997–2016 (quarterly data, % change from previous year) 115
Figure 20\tMulti-factor productivity, 1997–2014 125
Figure 21\tStructure of production 145
Figure 22\tStructure of production (GDP) 146
Figure 23\tStructure of production (GO) 147
Figure 24\tGO vs NGDP, 1997–2014 (£million) 150
Figure 25\tGO to NGDP ratio, 1997–2014 151
Figure 26\tGO and NGDP growth, 1998–2014 152
Figure 27\tUK payments, 1990–2013 (2006 = 100) 154
Figure 28\tUK payments growth (% change on previous year) 154
The author ix
Preface x
Acknowledgements xiii
Summary xiv
Tables and figures xvi
1\tIntroduction 1
2\tM: The importance of alternative monetary aggregates 8
Summary of key points 8
Introduction 9
Can money be measured? 13
Austrian definitions of the money supply 18
The Goldilocks measure 29
Divisia money 36
Conclusion 42
3\tV: Velocity shocks, regime uncertainty and the central bank 46
Summary of key points 46
The demand for money 49
Supplier-induced demand and central banks 62
Regime uncertainty and big players 67
Conclusion 79
4\tP: The hidden inflation of the great moderation 80
Summary of key points 80
Introduction 81
Inflation vs price-level targets 84
Fan charts 89
Price indices 94
Productivity norm 103
Conclusion 115
5\tY: GDP, GO and the structure of production 119
Summary of key points 119
Introduction 119
National income accounting 123
Beyond GDP 130
Gross production and capital consumption 135
Evidence for the UK economy 148
Conclusion 155
6\tConclusion 157
The dynamic process of economic crises 158
Policy conclusions 162
References 167
About the IEA 186
Blank Page ii