The correlation between money and output in the United Kingdom: resolution of a puzzle
Friedman and Schwartz (1982) and Goodhart (1982) report a zero correlation between money growth and output growth in U.K. historical data. This finding is puzzling, as there is wide agreement that changes in monetary policy are frequently nonneutral in the short run and that the U.K. experience, in particular, is replete with instances of real effects of monetary policy actions. This paper proposes a resolution to the puzzle. An analysis conducted on subperiods shows that a positive money growth/output growth correlation is indeed recoverable from U.K. historical data. Strike activity in the 1970s and shifts in the terms of trade during the interwar period are the two factors primarily responsible for obscuring the positive correlation between money and output in the United Kingdom.
|Date of creation:||2012|
|Date of revision:|
|Contact details of provider:|| Postal: 20th Street and Constitution Avenue, NW, Washington, DC 20551|
Web page: http://www.federalreserve.gov/
More information through EDIRC
|Order Information:||Web: http://www.federalreserve.gov/pubs/feds/fedsorder.html|
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- N. Kundan Kishor & Levis A. Kochin, 2007. "The Success Of The Fed And The Death Of Monetarism," Economic Inquiry, Western Economic Association International, vol. 45(1), pages 56-70, 01.
- Arthur F. Burns & Wesley C. Mitchell, 1946. "Measuring Business Cycles," NBER Books, National Bureau of Economic Research, Inc, number burn46-1, March.
- Neville Francis & Michael T. Owyang & Athena T. Theodorou, 2005.
"What explains the varying monetary response to technology shocks in G-7 countries?,"
2004-002, Federal Reserve Bank of St. Louis.
- Neville R. Francis & Michael T. Owyang & Athena T. Theodorou, 2005. "What Explains the Varying Monetary Response to Technology Shocks in G-7 Countries?," International Journal of Central Banking, International Journal of Central Banking, vol. 1(3), December.
- Francis, Neville R & Owyang, Michael T & Theodorou, Athena T, 2005. "What Explains the Varying Monetary Response to Technology Shocks in G-7 Countries?," MPRA Paper 834, University Library of Munich, Germany.
- Athena T. Theodorou & Neville R. Francis & Michael T. Owyang, 2004. "What Explains the Varying Monetary Response to Technology SHocks in G7-Countries," Econometric Society 2004 North American Summer Meetings 444, Econometric Society.
- Ravn, Morten O, 1997.
"Permanent and Transitory Shocks, and the UK Business Cycle,"
Journal of Applied Econometrics,
John Wiley & Sons, Ltd., vol. 12(1), pages 27-48, Jan.-Feb..
- Ravn, M.O., 1996. "Permanent and transitory shocks, and the UK business cycle," Discussion Paper Series In Economics And Econometrics 9627, Economics Division, School of Social Sciences, University of Southampton.
- Reinhart, Carmen, 2009.
"The Second Great Contraction,"
21485, University Library of Munich, Germany.
- Carmen M. Reinhart & Kenneth S. Rogoff, 2009.
"Varieties of Crises and Their Dates
[This Time Is Different: Eight Centuries of Financial Folly]," Introductory Chapters, Princeton University Press.
- Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "This Time Is Different: Eight Centuries of Financial Folly," Economics Books, Princeton University Press, edition 1, volume 1, number 8973.
- Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "Varieties of Crises and Their Dates
- Campos, Julia & Ericsson, Neil R. & Hendry, David F., 1990.
"An analogue model of phase-averaging procedures,"
Journal of Econometrics,
Elsevier, vol. 43(3), pages 275-292, March.
- Benjamin, Daniel K & Kochin, Levis A, 1979. "Searching for an Explanation of Unemployment in Interwar Britain," Journal of Political Economy, University of Chicago Press, vol. 87(3), pages 441-78, June.
- Laidler, David, 1982. "Friedman and Schwartz on Monetary trends: A review article," Journal of International Money and Finance, Elsevier, vol. 1(1), pages 293-305, January.
- Dwyer, Gerald P, Jr, 1985. "Money, Income, and Prices in the United Kingdom: 1870-1913," Economic Inquiry, Western Economic Association International, vol. 23(3), pages 415-35, July.
- Stock, James H., 1987. "Measuring Business Cycle Time," Scholarly Articles 3425950, Harvard University Department of Economics.
- Cobham, David P, 1980. "The Influence of the United Kingdom's Public Sector Deficit on Its Money Stock, 1963-76: Some Comments," Bulletin of Economic Research, Wiley Blackwell, vol. 32(2), pages 121-29, November.
When requesting a correction, please mention this item's handle: RePEc:fip:fedgfe:2012-29. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Marlene Vikor)
If references are entirely missing, you can add them using this form.