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Money as an Indicator

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  • Mark S Astley
  • Andrew G Haldane

Abstract

The leading indicator properties of various of the money and credit aggregates over real activity and inflation is assessed, using Granger-causality tests and impulse response functions. The approach is explicitly disaggregated, looking at sectoral measures of money and credit and various disaggregations of activity - in line with the results of earlier Bank research. Strong and significant effects from narrow money through to nominal GDP and, in particular, prices are found. Broader measures of money/credit - M4, M4 lending to Divisia - do much less well at an aggregate level. But sectoral disaggregation helps matters: for example, corporate M4 and Divisia appear to have a reliable mapping with investment and production and some measures of prices. However, none of the monetary aggregates offer sufficiently robust early warning signals to justify intermediate target status. Rather the message is that, when used alongside other information variables such as the Banks inflation projection, some of the monetary aggregates offer useful corroborative information about incipient activity and price developments.

Suggested Citation

  • Mark S Astley & Andrew G Haldane, 1995. "Money as an Indicator," Bank of England working papers 35, Bank of England.
    • Handle: RePEc:boe:boeewp:35
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    File URL: http://www.bankofengland.co.uk/archive/Documents/historicpubs/workingpapers/1995/wp35.pdf
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    References listed on IDEAS

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    Cited by:

    1. Andy Haldane & Bennett McCallum & Chris Salmon, 1996. "Base Money Rules in the UK," Bank of England working papers 45, Bank of England.
    2. K Alec Chrystal & Paul Mizen, 2001. "Consumption, money and lending: a joint model for the UK household sector," Bank of England working papers 134, Bank of England.
    3. Andrew Brigden & Paul Mizen, 1999. "Money, credit and investment in UK corporate sector," Bank of England working papers 100, Bank of England.
    4. van Zandweghe, Willem & Martinez Rico, Felipe & Gottschalk, Jan, 2000. "Money as an Indicator in the Euro Zone," Kiel Working Papers 984, Kiel Institute for the World Economy (IfW Kiel).
    5. Ryland Thomas, 1997. "The Demand for M4: A Sectoral Analysis Part 2 The Corporate Sector," Bank of England working papers 62, Bank of England.
    6. Fischer, Björn & Köhler-Ulbrich, Petra & Seitz, Franz, 2004. "The demand for euro area currencies: past, present and future," Working Paper Series 330, European Central Bank.
    7. Norbert Janssen, 1998. "The demand for M0 in the United Kingdom reconsidered: some specification issues," Bank of England working papers 83, Bank of England.
    8. Calza, Alessandro & Sousa, João, 2003. "Why has broad money demand been more stable in the euro area than in other economies? A literature review," Working Paper Series 261, European Central Bank.

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