We investigate whether or not monetary aggregates are important in determining output. In addition to the official Simple Sum measure of money, we employ the weighted Divisia aggregate. We use data-driven procedures to identify breaks in the data. We find that monetary aggregates, particularly Divisia, are important in determining output but the results are sensitive to time period employed. There is a strong correlation between the significance of monetary aggregates and the importance the central bank attaches to their role as a monetary policy tool. The results also suggest that the recovery from the financial crisis in the UK could have been faster if money was not being hoarded.
|Published - 19 Jun 2017