Quarterly Bulletin
Money Articles
| 2007 Q3 | Interpreting movements in broad money Proposals to modify the measurement of broad money in the United Kingdom: a user consultation |
| Summer 2006 | Cost-benefit analysis of monetary and financial statistics  (181k)(By Andrew Holder of the Bank's Monetary and Financial Statistics Division). Data collected by the Bank of England from UK banks are used in compiling a range of economic statistics published by the Bank, the Office for National Statistics and other organisations. These data help the Bank maintain monetary and financial stability, and contribute to many other economic analyses. But data collection inevitably imposes some costs on those supplying the information. This article describes a cost-benefit analysis (CBA) framework that has been developed to help balance the demands on data suppliers with the needs of users. It sets out some of the practical solutions employed in applying CBA to monetary and financial statistics and early results of the project. |
| Autumn 2005 | Long-run evidence on money growth and inflation Publication of narrow money data: the implications of money market reform |
| Spring 2005 |
Divisia
money
(116k) (by Matthew Hancock of the Bank's Monetary Assessment and Strategy Division). This article reviews the Bank's measure of Divisia money - a gauge of the money supply that gives greatest weight to those components most used in transactions - and explains some recent changes to its calculation. These changes aim to make the Bank's series more theoretically appealing and to make use of some recently developed statistics. Five improvements have been made. First, a new approach has been introduced to determine the benchmark interest rate. Second, new effective interest rate data have been incorporated. Third, the level of aggregation has been changed slightly. Fourth, non break-adjusted levels are now used as the denominator in the Divisia calculation. Finally, a series for aggregate Divisia excluding other financial corporations, and a set of monthly series, have been introduced. In this article we begin with a discussion of the purpose of Divisia money, then we set out the changes that have been made, and the motivation behind them. Throughout we describe the impact of the changes on the Bank's series. |
| Summer 2004 | Assessing
the stability of narrow money demand in the United Kingdom
(179k) (by Kathryn Grant, Gertjan Vlieghe and Andrew Brigden of the Bank's Monetary Assessment and Strategy Division). It is widely accepted that the introduction of cash-saving technologies, such as credit and debit cards, and the growing network of automated teller machines (ATMs) contributed to a prolonged upward shift in narrow money velocity towards the end of the 20th century. This article considers whether this upward shift might plausibly have come to an end. First, it presents data on four distinct manifestations of financial innovation, and asks whether the pace of change in each might have slowed. Second, it uses time-series data stretching back more than 100 years to present estimates of the demand for narrow money during different time periods. It finds tentative evidence that, since the early 1990s, narrow money velocity has been a broadly stable function of the short-term rate of interest. |
| Autumn 2003 | The
optimal rate of inflation: an academic perspective
(80k) (by Peter Sinclair, Houblon-Norman Fellow and Professor of Economics at the University of Birmingham). In an economy free of all imperfections, inflation should be slightly negative. Prices should keep dropping, at the real rate of interest. Any higher rate of sustained inflation (or lower deflation) would reduce the benefits from holding real money. Central banks typically aim for modest positive inflation, however. This article explores five types of imperfection: inertia in nominal prices, the need for distorting taxes, market power for retail banks, the value of the option to cut nominal interest rates in bad times, and menu costs. It concludes that the combined effect of these imperfections is in practice likely to justify a small positive rate of inflation. |
| Spring 2003 | Monetary
policy and the zero bound to nominal interest rates
(93k) (by Tony Yates of the Bank's Monetary Assessment and Strategy Division). Some commentators have recently discussed the possibility that certain countries may experience a period of general price deflation. In such a situation, nominal interest rates may reach their lower bound of zero. This article concludes that the evidence available suggests that such a situation is highly unlikely to occur in the United Kingdom. It reviews what the academic literature has to say about the scope for alternatives to cutting interest rates in the improbable event that nominal interest rates do reach zero. |
| Autumn 2002 | Money
and credit in an inflation-targeting regime
(85k) (by Andrew Hauser and Andrew Brigden of the Bank's Monetary Assessment and Strategy Division). This article is one of a series on the UK monetary policy process. It discusses how the assessment of money and credit data fits into the Bank's quarterly forecast round. Monetary statistics are available more rapidly than most other economic data and provide early information on the near-term economic outlook. The analysis on money and credit might be used to adjust some output of the Bank's macroeconometric model. It could also help the MPC to assess the risks around its central projections, reflected in the inflation and GDP fan charts. |
| Summer 2002 | No
money, no inflation—the role of money in the economy
(177k) In this article, Mervyn King, Deputy Governor, examines the apparent contradiction that the acceptance of the idea inflation is a monetary phenomenon has been accompanied by the lack of references to money in the conduct of monetary policy during its most successful period. The disappearance of money from the models used by economists is, however, more apparent than real, with official interest rates playing the leading role as the instrument of policy, with money in the wings off-stage. Nevertheless, there are real dangers in relegating money to this behind-the-scenes role. |
| Summer 2001 | Explaining
the difference between the growth of M4 deposits and M4
lending: implications of recent developments in public
finances Although monetary aggregates are no longer officially targeted for monetary policy purposes, analysis of these quantities plays an important role in the Bank's regular assessment of the outlook for inflation. In its regular monetary policy analysis, the Bank primarily examines the banking sector's sterling liabilities and assets with the UK private sector. These quantities, known as M4 deposits (M4) and M4 lending (M4L) respectively, constitute a sub-section of the banking sector's overall balance sheet. The Bank focuses on M4 and M4L in particular (rather than the overall levels of banking sector deposits and lending) because, given that these quantities are country and currency-specific, they would be expected to relate closely to UK economic activity. The first section of this article sets out the formal definition of M4 and its accounting relationship with the banking sector's balance sheet counterparts. The second section outlines how the new government cash management arrangements could affect the monetary statistics. The third section details the Government's cash surplus in 2000/01 and its monetary implications. The fourth section accounts for the difference between M4 and M4L growth in 2000/01. |
| May 2000 | Money,
lending and spending: a study of the UK non-financial corporate
sector and households
(64k) (by Andrew Brigden of the Bank's Stuctural Economic Analysis Division, Alec Chrystal of the Bank's Monetary Assessment and Strategy Division and Paul Mizen, consultant to the Bank's Monetary Assessment and Stategy Division). Many empirical studies over the past three decades or so have reported estimates of the determinants of consumption, investment and the demand for money. This article summarises recent Bank work that seeks to understand more fully the demand for bank and building society loans, and the interactions between these borrowings and the demand for money and decisions to consume and invest. This work aims to enhance our understanding of the links between the monetary sector and real spending decisions. The main aim of this article is to assess whether the data on bank and building society lending to private non-financial corporations (PNFCs) and households contain information that could improve our understanding of the links between monetary policy and aggregate demand. The article demonstrates that it is possible to estimate relationships that explain lending to firms and households, and that lending is driven by the same factors that drive the more intensively researched categories of money demand, consumption and investment. The results have improved our understanding of the links between money and credit and the spending decisions of households and firms. There do appear to be significant interactions between lending to firms and households, and money, consumption and investment. The estimated system of equations potentially gives a framework that helps us to interpret the likely impact of observed credit growth on future spending. These estimates are tentative and require further empirical verification. Notwithstanding these reservations, channels that involve credit as well as money balances appear to matter for the transmission mechanism of monetary policy. |
| May 1997 | The information in money (42k) (by Mark S Astley of the Bank's Structural Economic Analysis Division and Andrew G Haldane of the Bank's Monetary Assessment and Strategy Division). The monetary and credit aggregates are among many indicators used to consider future prospects for inflation. This article assesses the information contained in money and credit about future real activity and inflation. Some of the sectoral components of money and credit are found to have explanatory power over certain disaggregated components of spending. But none of the aggregates is sufficiently reliable to justify looking only at money when formulating an inflation assessment. |
| November 1996 | The demand for Divisia money by the personal sector and by industrial and commercial companies (44k) (by Norbert Janssen of the Bank's Monetary Assessment and Strategy Division). This article updates previous Bank analysis of Divisia money. It assesses the demand for Divisia money by the personal sector and by industrial and commercial companies (ICCs). Divisia money weights the component assets of M4 according to an estimate of the transactions services they provide. As an index of total liquidity in the economy Divisia might therefore be more closely related to spending than simple-sum monetary aggregates. The article concludes that a sectoral analysis of Divisia money can contain important information about future spending. |
| May 1996 | Understanding broad money Seasonal adjustment of UK monetary aggregates |
| February 1996 | Can we explain the shift in M0 velocity? Some time-series and cross-section evidence (88k) (by Norbert Janssen of Monetary Assessment & Strategy Division). The steady upward trend in narrow money velocity in the United Kingdom slowed in the 1990s, coinciding with fewer cash-saving financial innovations and lower inflation. |
| February 1995 | Influences on broad money growth (52k) (by Chris Salmon of the same Division) reviews the evolution of the role of broad money indicators in the monetary policy framework, and considers the factors currently influencing the growth of M4-focusing on the effects of disintermediation and balance-sheet restructuring. It compares the UK position with recent trends in Australia, Canada and the United States. |
| February 1994 | The determination of M0 and M4 (by Francis Breedon and Paul Fisher of Economics Division) summarises recent Bank research on M0 and M4. The research confirms the leading indicator properties of M0, and in explaining M4's behaviour, underlines the importance of the role of wealth and of a sectoral approach. It also suggests that there may be benefits in the simultaneous estimation of equations for consumption and personal sector M4 holdings. |
