St. Louis Models of the UK Economy

The economists at the Federal Reserve Bank of St Louis in the United States have produced over a number of years a series of models which amount to a reassertion of the short-run quantity theory of money. This theory has been summarised by Tobin as ‘in the short-run, nominal income is proportional to the supply of money, although changes in nominal income may affect output as well as prices’. In other words, it is postulated that in the short-run there is a large and rapid influence of monetary actions on nominal income relative to that of fiscal actions and, indeed, that fiscal action unaccompanied by changes in money has little net effect on national output even in the short-run. This is an extreme version of the monetarist position, given that most monetarists, including Friedman, choose to work in the framework of the long-run rather than the shortrun quantity theory.