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The information content of M0 in the United Kingdom

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  • Mohammad Hasan

Abstract

This paper examines the empirical characteristics of target-goal relationships between M0 on the one hand, and output, prices, interest rates and the current account balance on the other hand, in terms of a good intermediate target and informational variable. The results of a five-variate vector error correction model are indicative of feedback relationships between M0 and output, prices and output, and prices and M0, which is consistent with the Keynesian 'monetary accommodation' hypothesis. The finding of a reverse causality from output, prices and interest rates to M0 suggests that M0 may not serve well as a good intermediate target and informational variable of British monetary policy. The evidence therefore suggests the reduced effectiveness of monetary targeting strategy as a stabilization tool.

Suggested Citation

  • Mohammad Hasan, 2005. "The information content of M0 in the United Kingdom," Applied Economics Letters, Taylor & Francis Journals, vol. 12(11), pages 711-717.
    • Handle: RePEc:taf:apeclt:v:12:y:2005:i:11:p:711-717
    DOI: 10.1080/13504850500243904
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    References listed on IDEAS

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    1. Granger, C W J, 1969. "Investigating Causal Relations by Econometric Models and Cross-Spectral Methods," Econometrica, Econometric Society, vol. 37(3), pages 424-438, July.
    2. Breedon, F J & Fisher, P G, 1996. "M0: Causes and Consequences," The Manchester School of Economic & Social Studies, University of Manchester, vol. 64(4), pages 371-387, December.
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