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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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    1. Quah, Danny & Vahey, Shaun P, 1995. "Measuring Core Inflation?," Economic Journal, Royal Economic Society, vol. 105(432), pages 1130-1144, September.
    2. Joanna Paisley & Chris Salmon, 1995. "How Cyclical is the PSBR?," Bank of England working papers 34, Bank of England.
    3. Paul Fisher & Juna Vega, 1993. "An Empirical Analysis of M4 in the United Kingdom," Bank of England working papers 21, Bank of England.
    4. Thoma, Mark A., 1994. "Subsample instability and asymmetries in money-income causality," Journal of Econometrics, Elsevier, vol. 64(1-2), pages 279-306.
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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. Andrew Brigden & Paul Mizen, 1999. "Money, credit and investment in UK corporate sector," Bank of England working papers 100, Bank of England.
    3. 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).
    4. 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.
    5. Norbert Janssen, 1998. "The demand for M0 in the United Kingdom reconsidered: some specification issues," Bank of England working papers 83, Bank of England.
    6. Ryland Thomas, 1997. "The Demand for M4: A Sectoral Analysis Part 2 The Corporate Sector," Bank of England working papers 62, Bank of England.

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