Finance and Economics Discussion Series: Data for FEDS Paper 2012-29
♣
The Correlation between Money and Output in the United Kingdom: Resolution of a Puzzle
Figure 1. Scatter diagram of money growth and real output growth United Kingdom 1872-1975 using Friedman and Schwartz's (1982) data
| Log-Difference of FS M2 Series | Log Difference of FS unadj y | |
|---|---|---|
| 1869-1 | 0.052815167 | |
| 1870-1 | 0.118174471 | |
| 1871-1 | 0.051856692 | |
| 1872-1 | 0.093134689 | 0.004153076 |
| 1873-1 | 0.056452377 | 0.03547915 |
| 1874-1 | 0.037041272 | 0.007401115 |
| 1875-1 | 0.021259999 | 0.026862275 |
| 1876-1 | 0.001616815 | 0.008796098 |
| 1877-1 | -0.006483005 | 0.019512814 |
| 1878-1 | -0.03980625 | -0.012966146 |
| 1879-1 | -0.030930301 | 0.023644304 |
| 1880-1 | 0.01386504 | 0.001061571 |
| 1881-1 | 0.017065261 | 0.05921936 |
| 1882-1 | 0.023412441 | 0.021761492 |
| 1883-1 | 0.018018506 | -0.001468789 |
| 1884-1 | 0.020884293 | 0.001468789 |
| 1885-1 | 0.011067307 | 0.012639935 |
| 1886-1 | -0.003149609 | 0.038384243 |
| 1887-1 | -0.00315956 | 0.036965194 |
| 1888-1 | 0.025001302 | 0.065881705 |
| 1889-1 | 0.04230238 | 0.059834732 |
| 1890-1 | 0.032026027 | 0.005516168 |
| 1891-1 | 0.039330912 | -0.010665714 |
| 1892-1 | 0.02314603 | -0.028193571 |
| 1893-1 | 0.006706933 | 0.010564909 |
| 1894-1 | 0.005333346 | 0.084448138 |
| 1895-1 | 0.053086898 | 0.037905413 |
| 1896-1 | 0.05757867 | 0.029253187 |
| 1897-1 | 0.008298803 | 0.024362159 |
| 1898-1 | 0.021028812 | 0.047982736 |
| 1899-1 | 0.034094211 | 0.039903964 |
| 1900-1 | 0.026462404 | -0.037000268 |
| 1901-1 | 0.008667443 | -0.008736506 |
| 1902-1 | 0.002155173 | 0.028197959 |
| 1903-1 | 0.00643779 | -0.013679234 |
| 1904-1 | -0.011834458 | -0.010302731 |
| 1905-1 | 0.019293203 | 0.040588958 |
| 1906-1 | 0.030321194 | 0.050002841 |
| 1907-1 | 0.021396639 | 0.033714324 |
| 1908-1 | 0.008032172 | -0.051609224 |
| 1909-1 | 0.018821754 | 0.019961932 |
| 1910-1 | 0.027107178 | 0.0376310679999999 |
| 1911-1 | 0.029178541 | 0.028841422 |
| 1912-1 | 0.037327957 | 0.023190236 |
| 1913-1 | 0.035984576 | 0.027136541 |
| 1914-1 | 0.085069838 | 0.006018597 |
| 1915-1 | 0.105835462 | 0.030320925 |
| 1916-1 | 0.104719284 | 0.035798006 |
| 1917-1 | 0.180288274 | -0.00883007899999999 |
| 1918-1 | 0.17452477 | 0.027458899 |
| 1919-1 | 0.15665381 | -0.125211083 |
| 1920-1 | 0.104360015 | -0.082649562 |
| 1921-1 | -0.022504968 | -0.059199998 |
| 1922-1 | -0.033801895 | 0.0376805699999999 |
| 1923-1 | -0.043925335 | 0.037809382 |
| 1924-1 | -0.016138906 | 0.045907783 |
| 1925-1 | -0.00796817 | 0.067143014 |
| 1926-1 | 0.003593536 | -0.038964199 |
| 1927-1 | 0.014639233 | 0.087474361 |
| 1928-1 | 0.020987945 | 0.013151429 |
| 1929-1 | 0.006134989 | 0.036268931 |
| 1930-1 | 0.008374621 | -0.007051701 |
| 1931-1 | -0.012204576 | -0.072869861 |
| 1932-1 | 0.022762743 | 0.007322208 |
| 1933-1 | 0.050467747 | 0.043091434 |
| 1934-1 | 0.002849005 | 0.076369309 |
| 1935-1 | 0.034944156 | 0.033199957 |
| 1936-1 | 0.062561981 | 0.050588506 |
| 1937-1 | 0.045405025 | 0.017494387 |
| 1938-1 | -0.004944386 | 0.018630222 |
| 1939-1 | 0.013538668 | 0.007355979 |
| 1940-1 | 0.097474983 | -0.01862528 |
| 1941-1 | 0.141436026 | 0.08988862 |
| 1942-1 | 0.141800359 | 0.046531185 |
| 1943-1 | 0.115831816 | 0.009023994 |
| 1944-1 | 0.123388986 | -0.001270339 |
| 1945-1 | 0.096475385 | 0.010404629 |
| 1946-1 | 0.099130339 | -0.033224449 |
| 1947-1 | 0.082867686 | 0.006222568 |
| 1948-1 | 0.017029039 | 0.027354594 |
| 1949-1 | 0.015419476 | 0.039336781 |
| 1950-1 | 0.009831035 | 0.038833331 |
| 1951-1 | 0.008907951 | 0.019348624 |
| 1952-1 | 0.014905505 | -0.006462058 |
| 1953-1 | 0.030404453 | 0.029543067 |
| 1954-1 | 0.037702658 | 0.042212059 |
| 1955-1 | 0.006183909 | 0.036292215 |
| 1956-1 | -0.007708632 | 0.009411493 |
| 1957-1 | 0.021350822 | 0.011035583 |
| 1958-1 | 0.034704956 | -0.004141975 |
| 1959-1 | 0.042173101 | 0.036398313 |
| 1960-1 | 0.03618768 | 0.066597881 |
| 1961-1 | 0.021398752 | 0.022343732 |
| 1962-1 | 0.018756036 | 0.013668781 |
| 1963-1 | 0.046761301 | 0.042310486 |
| 1964-1 | 0.047924594 | 0.053463812 |
| 1965-1 | 0.056019825 | 0.03086768 |
| 1966-1 | 0.039895727 | 0.015461981 |
| 1967-1 | 0.042723506 | 0.022648121 |
| 1968-1 | 0.06889622 | 0.031709086 |
| 1969-1 | 0.050013721 | 0.018151895 |
| 1970-1 | 0.061767276 | 0.017630817 |
| 1971-1 | 0.107566454 | 0.01810137 |
| 1972-1 | 0.178510991 | 0.014153223 |
| 1973-1 | 0.235376396 | 0.072187254 |
| 1974-1 | 0.175286826 | -0.006603629 |
| 1975-1 | 0.0949675849999999 | -0.027503435 |
Figure 2. U.K. nominal GDP growth and inflation postwar (1949-2010)
| Log Difference of Modern Nominal GDP | Percent Change Modern P | |
|---|---|---|
| 1949-1 | 0.0609930300758936 | 0.0286971135123279 |
| 1950-1 | 0.0447182133456305 | 0.013489851662608 |
| 1951-1 | 0.105180156743097 | 0.0814401886339366 |
| 1952-1 | 0.0779801424871884 | 0.0805082716597742 |
| 1953-1 | 0.0687217133270792 | 0.0315481213768398 |
| 1954-1 | 0.0570448300271415 | 0.0169526254316345 |
| 1955-1 | 0.0726093127787308 | 0.0393369347317005 |
| 1956-1 | 0.0724757678575667 | 0.0652747669926541 |
| 1957-1 | 0.0534265459011713 | 0.0377475089060728 |
| 1958-1 | 0.0418619421644503 | 0.0394043411906379 |
| 1959-1 | 0.0548250114808315 | 0.0130329664265227 |
| 1960-1 | 0.0647207502102844 | 0.0128662118772471 |
| 1961-1 | 0.0537693425898044 | 0.0312096883764327 |
| 1962-1 | 0.0462646204093957 | 0.0361389063514676 |
| 1963-1 | 0.057493123095849 | 0.0155280475861683 |
| 1964-1 | 0.0886241811946177 | 0.0358850777172798 |
| 1965-1 | 0.0770680434334369 | 0.0565067180662128 |
| 1966-1 | 0.0621166741725698 | 0.0439899172569062 |
| 1967-1 | 0.0533075518209145 | 0.0293622555261441 |
| 1968-1 | 0.0804627554124088 | 0.0400844170384728 |
| 1969-1 | 0.0743190204510266 | 0.0552801546947052 |
| 1970-1 | 0.09472422132486 | 0.0752217330633355 |
| 1971-1 | 0.109358702400175 | 0.0926573493181885 |
| 1972-1 | 0.11380419295752 | 0.0810466881248164 |
| 1973-1 | 0.142865594678088 | 0.0761268190318982 |
| 1974-1 | 0.12550398104028 | 0.14882037208848 |
| 1975-1 | 0.233286934712944 | 0.270639178258407 |
| 1976-1 | 0.168265758953188 | 0.152862431875295 |
| 1977-1 | 0.151789058624272 | 0.13692428883133 |
| 1978-1 | 0.141690955490039 | 0.116166194481139 |
| 1979-1 | 0.162473458618764 | 0.145719563936689 |
| 1980-1 | 0.157428138973939 | 0.195383569988622 |
| 1981-1 | 0.0944349512880844 | 0.113768804414551 |
| 1982-1 | 0.0921737237420252 | 0.074082270143474 |
| 1983-1 | 0.0890820158148049 | 0.0549371199885846 |
| 1984-1 | 0.0713074198991954 | 0.0459752299770561 |
| 1985-1 | 0.0921495277551969 | 0.0584266503016099 |
| 1986-1 | 0.0729868237117177 | 0.0342192173029931 |
| 1987-1 | 0.0967134243981178 | 0.053481708288676 |
| 1988-1 | 0.110001381219209 | 0.062800190846918 |
| 1989-1 | 0.0932429218923829 | 0.0732406195246342 |
| 1990-1 | 0.08221269763707 | 0.0772905475162992 |
| 1991-1 | 0.0485677769954548 | 0.0645924986439216 |
| 1992-1 | 0.0383681959908894 | 0.0375917866326447 |
| 1993-1 | 0.050338298915447 | 0.0287633892672032 |
| 1994-1 | 0.0576042392477251 | 0.0158157371288951 |
| 1995-1 | 0.0564972882857404 | 0.0267843037839725 |
| 1996-1 | 0.0639957672339779 | 0.0361908175524239 |
| 1997-1 | 0.059937067803677 | 0.0266252268126847 |
| 1998-1 | 0.0575164431940162 | 0.0200431964424563 |
| 1999-1 | 0.0550120636712723 | 0.019291219059518 |
| 2000-1 | 0.0497816089219327 | 0.00618912574873919 |
| 2001-1 | 0.0453982967304842 | 0.014481645483132 |
| 2002-1 | 0.0512684317268323 | 0.0253564952439122 |
| 2003-1 | 0.0578748626869156 | 0.0235076281094779 |
| 2004-1 | 0.0537568177776641 | 0.0249376652143815 |
| 2005-1 | 0.0422766609231075 | 0.0218692471070787 |
| 2006-1 | 0.0575522282618212 | 0.032326632752333 |
| 2007-1 | 0.0564801921701647 | 0.0226586372336547 |
| 2008-1 | 0.0197733921582425 | 0.0313445114713448 |
| 2009-1 | -0.0283045102823784 | 0.0165494343796532 |
| 2010-1 | 0.0453030269830385 | 0.0282355403442287 |
Figure 3. Scatter of money growth and output growth for 1956-1975
| Log Difference of FS M2 Series | Log Difference of FS Unadj Y | |
|---|---|---|
| 1956-1 | -0.007708632 | 0.009411493 |
| 1957-1 | 0.021350822 | 0.011035583 |
| 1958-1 | 0.034704956 | -0.004141975 |
| 1959-1 | 0.042173101 | 0.036398313 |
| 1960-1 | 0.03618768 | 0.066597881 |
| 1961-1 | 0.021398752 | 0.022343732 |
| 1962-1 | 0.018756036 | 0.013668781 |
| 1963-1 | 0.046761301 | 0.042310486 |
| 1964-1 | 0.047924594 | 0.053463812 |
| 1965-1 | 0.056019825 | 0.03086768 |
| 1966-1 | 0.039895727 | 0.015461981 |
| 1967-1 | 0.042723506 | 0.022648121 |
| 1968-1 | 0.06889622 | 0.031709086 |
| 1969-1 | 0.050013721 | 0.018151895 |
| 1970-1 | 0.061767276 | 0.017630817 |
| 1971-1 | 0.107566454 | 0.01810137 |
| 1972-1 | 0.178510991 | 0.014153223 |
| 1973-1 | 0.235376396 | 0.072187254 |
| 1974-1 | 0.175286826 | -0.006603629 |
| 1975-1 | 0.0949675849999999 | -0.027503435 |
Figure 4. U.K. nominal income growth and inflation in the interwar period
| Log Difference of FS UK Nominal Income | Log Difference of FS Unadjusted Price Level | |
|---|---|---|
| 1919-1 | 0.0359633395099177 | 0.161268147655109 |
| 1920-1 | 0.111698767934191 | 0.194202367384224 |
| 1921-1 | -0.178036874832583 | -0.118836051022407 |
| 1922-1 | -0.13484348593773 | -0.172306232494269 |
| 1923-1 | -0.0471486358343007 | -0.0849652599619323 |
| 1924-1 | 0.0374056629584931 | -0.0085268162291614 |
| 1925-1 | 0.0738942658048582 | 0.00663824154129333 |
| 1926-1 | -0.0550359483124438 | -0.0161985438032754 |
| 1927-1 | 0.0610797843879566 | -0.0262788844638404 |
| 1928-1 | 0.0032585565868004 | -0.00991088389945371 |
| 1929-1 | 0.0322568899841382 | -0.00399202126953746 |
| 1930-1 | -0.0151370077706705 | -0.00803217169726444 |
| 1931-1 | -0.1054971930311 | -0.0327898228229912 |
| 1932-1 | -0.0299689464813504 | -0.0371395469494562 |
| 1933-1 | 0.0277795641070763 | -0.0152508402524675 |
| 1934-1 | 0.0688102064028743 | -0.0077135368677812 |
| 1935-1 | 0.0420692981549883 | 0.00881062968215484 |
| 1936-1 | 0.0548670871418792 | 0.00437637459979889 |
| 1937-1 | 0.0559712862907932 | 0.038548670117235 |
| 1938-1 | 0.0425413233530669 | 0.0238724362064814 |
Figure 5a. Real money and output behavior in the interwar period - Index levels
| UK Real Money Level Index 1929=1 | FS Output Data Index 1929=1 | |
|---|---|---|
| 1919-1 | 0.766783698626882 | 0.865349582564891 |
| 1920-1 | 0.700898020994723 | 0.796704627721727 |
| 1921-1 | 0.771775328941839 | 0.750908650324938 |
| 1922-1 | 0.886426152721757 | 0.779743154990166 |
| 1923-1 | 0.923561826093577 | 0.80978919279234 |
| 1924-1 | 0.916558279982154 | 0.847831354821115 |
| 1925-1 | 0.903267951327682 | 0.906711897188079 |
| 1926-1 | 0.921323591908854 | 0.872062030245968 |
| 1927-1 | 0.959804329243324 | 0.951780954953445 |
| 1928-1 | 0.98992409550496 | 0.964380906684495 |
| 1929-1 | 1 | 1 |
| 1930-1 | 1.01654212251204 | 0.992973103903662 |
| 1931-1 | 1.03768476083458 | 0.923188756626434 |
| 1932-1 | 1.10174394618688 | 0.929973346428347 |
| 1933-1 | 1.17658116696375 | 0.970923188870018 |
| 1934-1 | 1.18907472064316 | 1.04797673895615 |
| 1935-1 | 1.2205590432976 | 1.08335352504183 |
| 1936-1 | 1.29368481471392 | 1.13956869374723 |
| 1937-1 | 1.3025852544819 | 1.15968015540598 |
| 1938-1 | 1.26558456859372 | 1.1814877636875 |
Figure 5b. Real money and output behavior in the interwar period - Growth rates
| Real M2 Growth Using FS Data Log-Change | Log Difference of FS Unadj Y | |
|---|---|---|
| 1919-1 | -0.0046143375507448 | -0.125211083 |
| 1920-1 | -0.0898423522814857 | -0.082649562 |
| 1921-1 | 0.0963310826480681 | -0.059199998 |
| 1922-1 | 0.138504337004827 | 0.0376805699999999 |
| 1923-1 | 0.0410399249133392 | 0.037809382 |
| 1924-1 | -0.00761208946489499 | 0.045907783 |
| 1925-1 | -0.0146064111904706 | 0.067143014 |
| 1926-1 | 0.0197920793134054 | -0.038964199 |
| 1927-1 | 0.0409181172147707 | 0.087474361 |
| 1928-1 | 0.0308988287916749 | 0.013151429 |
| 1929-1 | 0.0101270098370536 | 0.036268931 |
| 1930-1 | 0.0164067923974347 | -0.007051701 |
| 1931-1 | 0.0205852472305219 | -0.072869861 |
| 1932-1 | 0.0599022900033192 | 0.007322208 |
| 1933-1 | 0.0657185876682948 | 0.043091434 |
| 1934-1 | 0.0105625416438561 | 0.076369309 |
| 1935-1 | 0.026133526703866 | 0.033199957 |
| 1936-1 | 0.0581856065568615 | 0.050588506 |
| 1937-1 | 0.00685635464483169 | 0.017494387 |
| 1938-1 | -0.0288168220519455 | 0.018630222 |
Figure 6. M2 growth output growth scatter: 1986 to 2010
| Log-Change (M from Hendry-Ericsson M1 and Bank of England Retail M4) | Log Difference of Modern Y | |
|---|---|---|
| 1986-1 | 0.125443163005758 | 0.039340061 |
| 1987-1 | 0.109360068161528 | 0.044612833 |
| 1988-1 | 0.132764693611805 | 0.049094267 |
| 1989-1 | 0.127161661817657 | 0.022560234 |
| 1990-1 | 0.10566327254277 | 0.007763561 |
| 1991-1 | 0.0972883796720132 | -0.014024319 |
| 1992-1 | 0.056666450339889 | 0.001465758 |
| 1993-1 | 0.0520672812300016 | 0.021980811 |
| 1994-1 | 0.0457232284960597 | 0.041912268 |
| 1995-1 | 0.0534651629783834 | 0.030065405 |
| 1996-1 | 0.0573400865510412 | 0.028444454 |
| 1997-1 | 0.0685018633691316 | 0.033660124 |
| 1998-1 | 0.0610818386341244 | 0.037671467 |
| 1999-1 | 0.0657698604568826 | 0.035904561 |
| 2000-1 | 0.0658742991858826 | 0.043611557 |
| 2001-1 | 0.0894026391682843 | 0.031020509 |
| 2002-1 | 0.0819415375372657 | 0.026228079 |
| 2003-1 | 0.0885817687057373 | 0.034639284 |
| 2004-1 | 0.0927460481298463 | 0.029125021 |
| 2005-1 | 0.0879136949495787 | 0.020643116 |
| 2006-1 | 0.0826102215379172 | 0.025737107 |
| 2007-1 | 0.0695564363487175 | 0.034074449 |
| 2008-1 | 0.0561347403387074 | -0.01108991 |
| 2009-1 | 0.0444177002863604 | -0.044718495 |
| 2010-1 | 0.0482831691909602 | 0.017458761 |
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