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M0: Causes and Consequences

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  • Francis Breedon
  • Paul Fisher

Abstract

This paper analyses four aspects of the determination and effects of M0 using annual, quarterly and monthly data. First it analyses the issue of the correct scale variable for determining M0. A combination of survey evidence and statistical tests indicate that retail sales is the most appropriate scale variable to use in looking at M0. Second, the paper looks at the best way to explain the trend in M0 velocity. It confirms earlier results showing that a cumulative interest rate term gives an adequate representation of the trend and is better than a linear time trend for this purpose. Third, the paper looks at the short-run interest elasticity of demand for M0. It finds that this elasticity is highly variable across models and suggests that the analysis of M0 is problematic following substantial changes in interest rates. Lastly, and probably most controvertially it looks at the leading indicators of properties in M0 for inflation. It finds that these are particularly robust and cannot be matched simply by the product of the explanatory terms in the M0 equation. Although this result is implicit in previous work done in the Bank (eg 'VAR models of inflation' Bank of England Quarterly Bulletin, May 1993) this paper makes an explicit empirical link between M0 and inflation.

Suggested Citation

  • Francis Breedon & Paul Fisher, 1993. "M0: Causes and Consequences," Bank of England working papers 20, Bank of England.
  • Handle: RePEc:boe:boeewp:20
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    Cited by:

    1. Seitz, Franz & Fischer, Björn & Köhler, Petra, 2004. "The demand for euro area currencies: past, present and future," Working Paper Series 330, European Central Bank.
    2. Anthony Garratt & Kevin Lee & M. Hashem Pesaran & Yongcheol Shin, 2003. "A Long run structural macroeconometric model of the UK," Economic Journal, Royal Economic Society, vol. 113(487), pages 412-455, April.
    3. Chadha, Jagjit S & Haldane, Andrew G & Janssen, Norbert G J, 1998. "Shoe-Leather Costs Reconsidered," Economic Journal, Royal Economic Society, vol. 108(447), pages 363-382, March.
    4. Ante Babić, 2000. "The Monthly Transaction Money Demand in Croatia," Working Papers 5, The Croatian National Bank, Croatia.
    5. Quah, Danny & Vahey, Shaun P, 1995. "Measuring Core Inflation?," Economic Journal, Royal Economic Society, vol. 105(432), pages 1130-1144, September.
    6. Browne, F.X. & Fagan, G. & Henry, J., 1997. "Money Demand in EU Countries : A Survey," Papers 7, European Monetary Institute.
    7. Hasan Bakhshi & Andrew Haldane & Neal Hatch, 1998. "Some costs and benefits of price stability in the UK," Bank of England working papers 78, Bank of England.
    8. Hasan Bakhshi & Andrew Haldane & Neal Hatch, 1999. "Some Costs and Benefits of Price Stability in the United Kingdom," NBER Chapters,in: The Costs and Benefits of Price Stability, pages 133-198 National Bureau of Economic Research, Inc.
    9. Marco Bianchi, 1995. "Granger causality tests in the presence of structural changes," Bank of England working papers 33, Bank of England.
    10. Mohammad Hasan, 2005. "The information content of M0 in the United Kingdom," Applied Economics Letters, Taylor & Francis Journals, vol. 12(11), pages 711-717.
    11. Marco Bianchi, 1995. "Testing for convergence: evidence from non-parametric multimodality tests," Bank of England working papers 36, Bank of England.
    12. Scott Hendry, 1995. "Long-Run Demand for M1," Macroeconomics 9511001, University Library of Munich, Germany.
    13. Norbert Janssen, 1998. "The demand for M0 in the United Kingdom reconsidered: some specification issues," Bank of England working papers 83, Bank of England.
    14. Paul Fisher & Juna Vega, 1993. "An Empirical Analysis of M4 in the United Kingdom," Bank of England working papers 21, Bank of England.
    15. E. Stefanescu & M. Bursik & A. Patra, 2012. "Effect of digital elevation model on Mohr-Coulomb geophysical flow model output," Natural Hazards: Journal of the International Society for the Prevention and Mitigation of Natural Hazards, Springer;International Society for the Prevention and Mitigation of Natural Hazards, vol. 62(2), pages 635-656, June.
    16. Francis Breedon & Ian Twinn, 1995. "Valuation of underwriting agreements for UK rights issues: evidence from the traded option market," Bank of England working papers 39, Bank of England.
    17. Bonin, Holger & Zimmermann, Klaus F., 2000. "The Post-Unification German Labor Market," IZA Discussion Papers 185, Institute for the Study of Labor (IZA).
    18. Francis Breedon, 1996. "Why do the LIFFE and DTB bund futures contracts trade at different prices?," Bank of England working papers 57, Bank of England.
    19. Ramon Moreno & Reuven Glick, 2001. "Is money still useful for policy in East Asia?," Pacific Basin Working Paper Series 2001-12, Federal Reserve Bank of San Francisco.
    20. Mohammad Hasan, 1998. "The choice of appropriate monetary aggregates in the United Kingdom," Applied Economics Letters, Taylor & Francis Journals, vol. 5(9), pages 563-568.

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