Economic and Social Review VoL 9 No. 3
T h e Demand for Money F u n c t i o n
in Ireland: Estimation and Stability
F R A N C I S X . B R O W N E T H O M A S O ' C O N N E L L *
Central Bank of Ireland
I I N T R O D U C T I O N
I
n this paper we specify and estimate a demand f o r m o n e y f u n c t i o n for Ireland. This f u n c t i o n is t h e n s u b m i t t e d t o a stability test using a recently developed technique. The issue o f the stability o f the demand for m o n e y f u n c t i o n is an i m p o r t a n t one f o r the monetary authorities irrespective o f whether m o n e t a r y p o l i c y is c o n d u c t e d w i t h i n a relatively closed economy, such as i n the U S , or w i t h i n a h i g h l y open economy w i t h a f i x e d exchange rate d o m i n a t e d b y external financial markets, as i n the case o f I r e l a n d .The revival o f interest i n the demand for m o n e y dates, perhaps, f r o m Friedman's 1956 article. He stressed that, as an e m p i r i c a l hypothesis, the demand f o r m o n e y is a h i g h l y stable f u n c t i o n o f a few variables that deter mine i t . A consequence o f this is t h a t changes i n the n o m i n a l stock o f m o n e y ( w h i c h i n a relatively closed economy is closely controllable b y the monetary authorities) that t e n d t o give rise t o a d i s e q u i l i b r i u m i n the m o n e y market w i l l result i n action b y m o n e y holders t o restore the e q u i l i b r i u m level o f real m o n e y balances. I f the n o m i n a l money stock tends t o exceed the de m a n d , monetarists argue t h a t the e q u i l i b r a t i n g mechanism w i l l be a general rise i n prices as the p u b l i c tries t o u n l o a d its excess m o n e y balances.
I t is w o r t h adverting t o the process whereby such a d i s e q u i l i b r i u m can arise in an economy w i t h zero or imperfect capital m o b i l i t y . A central b a n k does n o t d i r e c t l y c o n t r o l the n o m i n a l m o n e y stock; i t does so i n d i r e c t l y , p r i n cipally b y b u y i n g and selling government securities w h i c h affect the level o f b a n k reserves and the level o f short-term interest rates. The commercial banks' adjustment o f their p o r t f o l i o i n the face o f the new structure o f interest rates has repercussions o n the m o n e y stock. A l t h o u g h interest rate movements themselves represent an equilibrating mechanism, i t is possible for i n d i v i d u a l transactors t o f i n d t h a t their m o n e y holdings are o u t o f line w i t h their expectations and desires. A n o t h e r source o f d i s e q u i l i b r i u m arises f r o m exogenous changes i n the independent variables i n the demand for m o n e y f u n c t i o n .
The stability o f the demand for m o n e y f u n c t i o n has a different, b u t no less great, significance i n an economy w i t h a p p r o x i m a t e l y perfect capital m o b i l i t y . W i t h perfect capital m o b i l i t y there is no scope for altering the domestic interest rate; any a t t e m p t t o do so w i l l be frustrated b y capital flows. A stable demand for m o n e y f u n c t i o n i n this case implies t h a t , i f the authorities a t t e m p t t o change the domestic c o m p o n e n t o f the m o n e y stock, i.e., domestic credit, there w i l l be an exactly offsetting change i n the foreign c o m p o n e n t , i.e., external reserves.
I n either t y p e o f e c o n o m y , i t is i m p o r t a n t t o k n o w whether or n o t the demand f o r m o n e y f u n c t i o n is stable. I n a closed e c o n o m y , a stable f u n c t i o n enables the authorities to k n o w the effects o f their open-market operations on the level o f interest rates and, secondly, a stable f u n c t i o n is a necessary c o n d i t i o n for assessing the effects o f m o n e t a r y actions o n income. I n an open economy w i t h v i r t u a l l y perfect capital m o b i l i t y , a stable demand for m o n e y f u n c t i o n enables the authorities t o adapt domestic credit p o l i c y t o attain an external reserves target.
I I S P E C I F I C A T I O N A N D E S T I M A T I O N O F D E M A N D F O R M O N E Y F U N C T I O N S
I n this section, we specify and estimate demand for m o n e y functions at b o t h aggregated and disaggregated levels.
i i . i T H E D E F I N I T I O N O F M O N E Y
I t is clear that an external reserve loss w i l l continue i f the drain o n the m o n e y stock that results f r o m the reserve loss is being offset b y credit created b y the b a n k i n g system. W i t h o u t such a credit expansion, the i n c i p i e n t r e d u c t i o n i n money holdings w o u l d result i n a self-correcting mechanism eliminating the balance-of-payments deficit. Brau argues, therefore, that a central b a n k should concern itself w i t h c o n t r o l l i n g the credit o f all domestic financial i n s t i t u t i o n s w i t h a credit-creating p o t e n t i a l so that, given a stable m o n e y demand f u n c t i o n , an excessive increase i n credit does n o t take place w i t h a consequential external reserve loss. Where non-bank financial inter mediaries do n o t have a significant role i n creating credit, i t suffices for the central bank t o concern itself w i t h the credit-creating p o t e n t i a l o f the b a n k i n g system. I t follows f r o m this that the proper concept o f m o n e y (or bankers' liabilities) t o be used i n a demand for m o n e y investigation is broad money ( M 3 ) , i.e., currency plus current accounts plus deposit accounts at all banks.
I t is customary t o exclude government accounts at commercial banks f r o m the d e f i n i t i o n o f m o n e y f o r t w o reasons. First, at a macro level, i t is necessary to analyse economic behaviour w i t h i n a consistent balance sheet framework (see, for example, Brainard and T o b i n , 1968). This requires a recognition o f the interdependencies between financial markets and between different sectors. The four sectors customarily isolated are government, commercial banks, central bank and the non-bank private sector. This requires asset demand functions t o be estimated for each sector, one o f w h i c h is the private sector's demand f o r m o n e y . Secondly, the determinants o f the government's m o n e y holdings may be quite different f r o m those o f the private sector. A discretionary increase i n taxes w i l l increase government balances, b u t i t w o u l d seem incorrect t o view this as an increase i n the demand f o r m o n e y balances b y government.
Data o n the m o n e y stock and other variables together w i t h sources and methods are set o u t i n A p p e n d i x 1.
I I . 2 S P E C I F I C A T I O N
Before considering details o f an e m p i r i c a l nature, i t is necessary t o clarify w h e t h e r or n o t the m o n e y demand f u n c t i o n should be specified i n real or n o m i n a l terms. A l t h o u g h the specification i n real terms is the one suggested b y economic t h e o r y , some writers have couched their investigation i n n o m i n a l terms. We f o l l o w the r e c o m m e n d a t i o n o f J o h n s o n ( 1 9 7 1 , p . 124) t h a t e s t i m a t i o n should be i n terms o f n o m i n a l m o n e y w i t h the price level entered as an independent variable t o determine whether, i n fact, money demand is homogeneous o f degree one i n prices.
ii.3 A N A G G R E G A T E D E M A N D F O R M O N E Y F U N C T I O N (M3)
As a first step, we specify and estimate an aggregate demand for m o n e y f u n c t i o n . The functional forms used i n the specifications are those en countered most frequently i n the l i t e r a t u r e , the linear and log-linear f o r m u l ations. I n the event, the l o g a r i t h m i c specifications were f o u n d t o have a very l o w explanatory power, so that we have concentrated o n the linear specification. . . .
Those studies t h a t have regarded m o n e y as b u t one asset i n a p o r t f o l i o have logically tended t o use w e a l t h rather than income as the appropriate scale variable i n a demand for m o n e y f u n c t i o n . Since n o series o n w e a l t h is available, i t is necessary to operate w i t h income as the scale variable, w h i c h o f necessity lays emphasis o n the transactions m o t i v e for h o l d i n g m o n e y . Using income rather t h a n w e a l t h m a y make l i t t l e difference t o the efficiency o f the equation estimates, t o judge b y the evidence o f Goldfeld's (1973) comprehensive study.
O n the question o f w h a t interest rates t o include i n the demand for m o n e y f u n c t i o n , economists o f a more Keynesian persuasion t e n d t o regard m o n e y as a close substitute for other financial assets b u t a rather distant substitute for goods. A c c o r d i n g l y , the interest rate(s') t o be included i n a Keynesian demand f o r m o n e y f u n c t i o n w o u l d be the o w n rate (i.e., the de posit rate) and rates o n close substitutes such as b u i l d i n g society deposits and Treasury Bills. Writers o f a more monetarist k i n d , w h o regard m o n e y as a substitute for physical goods as w e l l as alternative financial assets, w o u l d include the expected rate o f i n f l a t i o n as an a d d i t i o n a l argument t o represent the n o m i n a l r e t u r n o n physical goods ( F r i e d m a n , 1 9 5 6 ) .
We have concentrated o n a f l o w demand specification for a n u m b e r o f reasons: i t is assumed that the economy inherits a stock o f m o n e y f r o m the past and, f u r t h e r m o r e , t h a t this stock o f m o n e y is i n e q u i l i b r i u m at the beginning o f the e s t i m a t i o n p e r i o d ; i n each subsequent p e r i o d changes i n the arguments evoke changes i n the f l o w demand for money w h i c h re establishes stock e q u i l i b r i u m at the end o f each p e r i o d . (The assumption o f
w i t h the U K . ) I n other words, o u r specification is an e q u i l i b r i u m f l o w demand specification. This desired f l o w demand for m o n e y balances is speci fied t o be a f u n c t i o n o f the expected values o f the arguments. The respective expected values o f the arguments are postulated to be weighted averages o f t h e i r past values. We eschew the use o f the K o y c k approach i n estimating the weights o n past values, because i t implies the i m p o s i t i o n o f identical geometrically declining lag structures o n all the independent variables. T h e A l m o n approach, w h i c h is e m p l o y e d here, is m u c h more flexible i n t h a t i t does n o t impose any o f the restrictions associated w i t h the K o y c k approach.
O u r specification is, therefore, as follows:
A M 3 = a + b A Ye + c A Pe + d A Re + e A Pe + u (1)
where M 3 = b r o a d m o n e y , Y = real i n c o m e , P = a general price i n d e x , R = interest rate t e r m , P = the rate o f i n f l a t i o n and u is a disturbance t e r m .
T h e V superscript indicates expected or permanent values o f a variable, and these are measured as weighted averages o f actual past values o f the variables. This results i n the f o l l o w i n g t y p e o f equation for e s t i m a t i o n :
b m n p A M 3 = an + . 2 b- A Yt • + 2 C: A Pt ; + . 2 d: A R + . 2 e- AP + u ( l1)
u i = 0 1 t _1 i = 0 1 t _1 i = 0 1 i = 0 1
I n p r e l i m i n a r y estimations, i t emerged t h a t t h e . appropriate p o l y n o m i a l lag structures o n the income and interest rates variables were linear and quadratic, respectively. ( A quadratic p o l y n o m i a l o n the income t e r m results i n a U-shaped p a t t e r n w h i c h is highly implausible.) A m o n o t i c a l l y declining structure o n income is a c o m m o n approach taken i n deriving a permanent income series. The weights o n the d i s t r i b u t e d lags o n interest rates m i g h t be expected t o e x h i b i t a h u m p e d p a t t e r n , since the o w n rate o f interest i n cluded i n the demand f u n c t i o n is the less t h a n £ 2 5 , 0 0 0 rate and thus includes the deposits o f small transactors w h o m a y ,be subject t o a learning delay: a parallel argument holds for the o p p o r t u n i t y cost rates, i.e. the Treasury B i l l rate and the expected i n f l a t i o n rate. (The Treasury B i l l rate is included as a general i n d i c a t o r o f short-term financial-market yields.) The h u m p e d quad ratic profile f o r interest rates has been suggested b y M o d i g l i a n i , Rasche and Cooper ( 1 9 7 0 ) .
Preliminary investigations o f the f l o w demand for broad money ( A M 3 ) indicated t h a t this demand was homogeneous w i t h respect t o changes i n the price level. Thus, i n the specification r e p o r t e d b e l o w , we impose the re s t r i c t i o n o f n o m o n e y i l l u s i o n . The result is as follows (the figures i n paren theses are estimated standard errors):
A ( M 3 / P )t = OJ^ + t a. A Yt_ i + | Q b ; A T B Rt_ j +
t c: A O D Rt : + I d;A Pt 36.23 D U M (2)
i=0 1 t _ 1 i=0 1 1 - 1
Where
ao = .62 bo
= 5.04
co = 0.52 do = -4.46 ao
(.20)
bo
(4.3)
co
(6.39) (1.5)
a! = . 5 1 b!
= -2.87 = 12.88
d
,
= -5.95 (.17)b!
(3.27) (3.90) (1.80)
A2 = .39 B2
= -7.38 s = 17.85
D2
= -6.59
(.15) (3.21) (4.57) (2.15)
A3 = .28 B3
= -8.51 = 15.43
D3
= -6.38
(.16) (3.70) (4.07) (2.12)
a4 = .17 (.19)
b4 = -6.25 (3.8)
C4 = 5.62 (7.56)
d4 = -5.32 (1.77)
A5
= .05 (.24)
bs = -0.60 (3.6)
D5
= -3.41 (1.72)
The variables entering this equation are as follows: M 3 / P = broad m o n e y in real terms, Y = real G N P , T B R = U K Treasury B i l l rate, O D R = the o r d i n a r y deposit rate ( < £ 2 5 , 0 0 0 ) at Associated Banks, P = the rate o f change o f the Consumer Price I n d e x and D U M is a d u m m y variable t o account for the d o w n w a r d effect o f the disclosure o f Associated Banks' p r o f i t s o n their deposits.
By conventional statistical criteria, this is quite a satisfactory equation w i t h o n l y the contemporaneous value o f the Treasury B i l l rate having an incorrect expected sign; the R2 indicates reasonably good explanatory p o w e r for a first-differences f o r m u l a t i o n and the Durbin-Watson statistic indicates that the n u l l hypothesis o f no first-order a u t o c o r r e l a t i o n cannot be rejected. T h e elasticities furnished b y the above specifications are quite plausible, although the income elasticity is somewhat l o w e r t h a n m i g h t have been expected: the permanent income elasticity is 0 . 8 1 , while the elasticities w i t h respect t o the expected deposit rate, the expected Treasury B i l l rate and the expected i n f l a t i o n rate are 0.32, —0.18 and —0.07, respectively, cal culated for the f o u r t h quarter o f 1975. The peak i m p a c t o f A O D R and AP occurs after two-quarters while the peak i m p a c t f o r A T B R occurs after three quarters, w h i c h is closely i n line w i t h other findings (see G o l d f e l d (1973) and Shapiro ( 1 9 7 3 ) ) . A s t r i k i n g feature o f the above estimated de m a n d f u n c t i o n is the very significant showing o f the expected i n f l a t i o n rate. A l t h o u g h the direct effect o f i n f l a t i o n a r y expectations is quite small, we must remember that the reported elasticity is p r o b a b l y a l o w e r b o u n d for this effect since i n f l a t i o n a r y expectations also feed i n t o n o m i n a l interest rates via the Fisher effect. The coefficient o n the d u m m y variable has the correct sign, and is very close t o the actual estimated d o w n w a r d effect o f the disclosure o f banks' p r o f i t s o n the n o m i n a l m o n e y stock i n M a r c h 1972 (£40 m i l l i o n ) .
A p l o t o f f i t t e d o n actual values f r o m e q u a t i o n (2) is given i n Figure A . Other t h a n for the p e r i o d 1965, quarter one, t o 1967, quarter four, all the t u r n i n g points and the amplitudes o f peaks and troughs i n the f l o w demand are p i c k e d up q u i t e w e l l .
Actual
Q4'63 Q4 '67 Q4 '71 04 '75
Figure A: Actual and Predicted Changes i n Broad Money (M3), £ m i l l i o n
n.4 D I S A G G R E G A T E D D E M A N D F O R M O N E Y F U N C T I O N S
A M I = 3 . 2 9 + £ a : A Yt • + 2 b: A O D R . (1.3) i = 0 ^ t _1 i = 0 1
aQ = 0.101 bQ= - 2 . 0 1 (0.04) (1.6) a, = 0.107 b j = -3.66
(0.02) (1.2) a2= 0.113 b2= - 3 . 1 6
(0.02) (1.2) a3= 0.118 b3= - 0 . 8 2
(0.03) (1.6) a4 = 0.124
(0.05)
R2 = 0.645 DW = 2.05
A feature o f equation (3) is the v i r t u a l l y equal weights o n past values o f income. This plateau effect is somewhat surprising since we expect de clining weights o n past values o f income. The income elasticity is quite plausible at 0.76, i n d i c a t i n g economies o f scale i n the holdings o f M l , while the interest rate elasticity is —0.098. Carrying o u t further disaggregation t o the level o f currency and current accounts and f i t t i n g separate demand functions ( n o t r e p o r t e d here) indicates that the source o f the trouble w i t h M l is current accounts w h i c h w h e n fjtted b y the A l m o n m e t h o d also had increasing weights o n past values o f i n c o m e . N o reasonable explanation for this p h e n o m e n o n is easily available. The estimated n a r r o w money equation (3) tracked the t u r n i n g points moderately w e l l , b u t the magnitude o f the change is almost invariably underestimated. The expected i n f l a t i o n rate variable was d r o p p e d f r o m equation (3) because o f its insignificance.
sign) several o f the coefficients are statistically insignificant f o r conventional T y p e 1 error sizes and the value o f associated elasticity is small at —0.11. The i n f l a t i o n rate elasticity is exactly the same as for the M 3 equation. ( I n fact, i t has been p o i n t e d o u t t o us that, since a large p r o p o r t i o n o f cur rent accounts is held b y the business sector, t h a t current accounts c o u l d be quite sensitive t o movements i n the Treasury B i l l rate.)
A ( D A / P )t = 2.27 + £ a : A Yt • + £ b- A T B Rt ;+ 2 c: A O D Rt : + 1 (3.2) i = 0 ^ t _1 i = 0 1 t _1 i = 0 1 1 1
. £ dj A Pt_ j — 35.5 A D U M (4)
ao = 0.45 bo = 4.39
c0 = 2.65
do
= -2.55
(0.17) (3.62) (5.4) (1.26)
al = 0.36 b
,
= -0.13 c, = 8.95(3.30)
d!
= -3.76
(0.14)
b
,
(2.76)
c, = 8.95
(3.30) (1.52)
A2
= 0.28
B2
= -2.99 c2 = 11.82
da = -4.41
(0.13) (3.13) (3.86) (1.82)
a 3 = 0.19 B3
= -4.21
C3 = 1 L 2 7 D3
= -4.49
(0.13) (3.08) (3.42) (1.79)
A4
= 0.10
B4
= -3.78 c4 = 7.30
D4
= -4.01
(0.16) (3.04) (6.30) (1.49)
as = 0.01 bs = -1.71 ds = -2-97
(0.20) (4.00) (1.46)
R2 = 0.62 D W = 1.92
I I I T H E S T A B I L I T Y O F T H E D E M A N D F O R M O N E Y F U N C T I O N
m . i T E C H N I Q U E S F O R T E S T I N G S T A B I L I T Y
Testing the stability o f a f u n c t i o n n o r m a l l y refers t o testing for the stability o f the regression equation over t i m e . The p r i n c i p a l deficiency i n the t r a d i t i o n a l C h o w stability test is t h a t i t requires p r i o r knowledge o f the time-period at w h i c h the regression relationship changes. A l t e r n a t i v e tests o f stability have been suggested b y B r o w n , D u r b i n and Evans ( 1 9 7 5 ) w h i c h do not require p r i o r specification o f the time-period w h e n the regression re lationship changes. These techniques use so-called recursive residuals, i.e., standardised residuals for the R—th, ( R + l ) — t h , etc. periods calculated f r o m regressions based o n the first (R—1), R, etc. observations, respectively. I f the disturbances i n the regression equation whose stability is being tested are spherical, t h e n , under the n u l l hypothesis o f constant regression coeffi cients over t i m e , i t can be shown that the recursive residuals themselves have spherical properties w i t h a constant variance equal t o t h a t o f the regression stochastic t e r m .
The T I M V A R p r o g r a m applied here (see Evans, 1973) uses cumulative sums or 'cusums' o f the recursive residuals (Uj's) against t i m e .
i.e., W R = l £Uj > R = k + 1 , T o j = k + l
where a is the estimated standard deviation for the regression over the whole-time p e r i o d o f the analysis. (The s u m m a t i o n over Uj goes f r o m ( k + 1 ) since there are k regressors.) The mean and variance o f the W R ' S are zero and (R—k), respectively. U n d e r the n u l l hypothesis H Q , since the mean o f W R is zero, the graph o f W R against t i m e w i l l fluctuate r a n d o m l y about the line = 0. A test for stability, therefore, can be made b y defining a critical region for a specified T y p e 1 error size defined b y t w o lines sym metrically above and b e l o w the W R = 0 line. (The actual critical region is defined b y a pair o f curves s y m m e t r i c a l l y o n either side o f this line. D u r b i n
et al approximate this region b y t a k i n g a pair o f lines tangent t o these curves
at the time p e r i o d halfway between t = k and t = T , where there are k re gressors and T observations.) I f the sample path moves outside these lines, H Q m a y be rejected. This is a m e t h o d b o r r o w e d f r o m q u a l i t y c o n t r o l , where, i f the i n d u s t r i a l process moves outside an accepted tolerance, the process is t e r m i n a t e d . The p r o g r a m prints o u t the m a x i m u m standardised cusum residual w h i c h can be compared w i t h a benchmark c o m p u t e d b y D u r b i n et al for specified significance levels. I n a d d i t i o n , the cusum residuals can be graphed and assessed over the full-time p e r i o d b y reference t o the lines
A n alternative stability test i n the T I M V A R package uses the cusum o f squared residuals w h i c h complements the cusum test especially w h e n the departure f r o m constancy o f regression is r a n d o m rather than systematic.
The test statistic for this case is:
SR = ( Z U -2) / ( . I U -2) K Vj = k + 1 J " j = k + l J '
The mean o f S R is (R—k)/(T—k). As w i t h the cusum test, the m a x i m u m deviation o f S R f r o m its mean value is p r i n t e d o u t and can be compared w i t h the critical values o n the lines b o u n d i n g the critical region. The S R statistics can also be p l o t t e d t o see their departure, i f any, f r o m the mean l i n e .
I t should be p o i n t e d o u t that the application o f the t w o cusum tests requires that the residuals be non-autocorrelated and homoscedastic. The presence o f the former can be tested for using the conventional D W test, while the latter can be assessed f r o m the estimated variance w h i c h is calcul ated f r o m m o v i n g regressions o f fixed t i m e segments.
I I I . 2 S T A B I L I T Y O F T H E D E M A N D F O R M O N E Y F U N C T I O N S
The stability tests o u t l i n e d above were applied t o the estimated demand for m o n e y equations set o u t i n Section I I . Before doing so, however, i t is necessary t o check t h a t the residuals are non-autocorrelated and h o m o scedastic; the D W statistics i n the equations o f Section I I are o f a size t o suggest the absence o f first-order a u t o c o r r e l a t i o n , while the estimated variance calculated f r o m the residuals f r o m m o v i n g regressions o f fixed length supports the hypothesis o f homoscedasticity i n the case o f the M 3 and deposit accounts equations. I n the case o f the M l equation, however, the estimated variance is m o n o t o n i c a l l y increasing up t o the last few m o v i n g regressions this suggests t h a t the stability tests for this equation should be treated w i t h c a u t i o n .
The results o f the test are graphed i n Figures 1 t o 6. (Time is measured on the h o r i z o n t a l axes. The t i m e span ranges f r o m the beginning o f 1966 t o the end o f 1975.) Corresponding to a significance level o f 5 per cent, each o f the estimated demand for m o n e y equations passes b o t h the cusum and cusum squared tests except for the case o f M l when s u b m i t t e d t o the cusum squared tests.
Broad Honey (M3)
Q4'65 Q4'70 Q4 '75 Q2 '66 Q4'70 Q475
F i g . 1: Cusum of Recursive Residuals F i g . 2 : Cusum of Squared Recursive
Residuals
Currency and Current Accounts (Ml)
Q4 '64 Q4 '70 Q4 ' 75
F i g . 3 : Cusum of Recursive Residuals F i g . 4: Cusum of Squared Recursive
E C O N O M I C A N D S O C I A L R E V I E W
Deposit Accounts
04 "65 Q4'70 Q4'75 Q2'66 Q4 '70 Q4'75
F i g . 5: Cusum of Recursive Residuals F i g . 6: Cusum of Squared Recursive Residuals
The M l e q u a t i o n easily passes the cusum test, b u t fails the cusum squared test where the cusum squared graph crosses i n t o the region o f rejection of the n u l l hypothesis. ( I f the significance level was 1 per cent, the M l equation w o u l d pass b o t h tests.) This result for M l may be influenced b y the b r e a k d o w n o f the assumption o f constant variance (homoscedasticity) o f the disturbance t e r m .
The deposits account equation, like M 3 , passes b o t h stability tests, al t h o u g h i t comes close t o the b o u n d a r y line o n one occasion o n the cusum squared graph.
The conclusions t o be drawn f r o m this section are t h a t , generally, the m o n e y demand equations estimated have displayed a fairly high degree o f stability over the p e r i o d examined. I f stability o f a functional r e l a t i o n is to be a c r i t e r i o n for choosing a d e f i n i t i o n o f m o n e y (see Laidler 1969) then the evidence presented here w o u l d p o i n t t o a b r o a d d e f i n i t i o n o f m o n e y
as being the appropriate one. (There is also a theoretical reason n o t e d above for focusing o n this concept.)
I V S U M M A R Y A N D C O N C L U S I O N S
i n the first difference f o r m and have focused o n the f l o w demand for m o n e y , changes i n w h i c h enable m o n e y holders t o attain stock e q u i l i b r i u m w i t h i n the u n i t o f t i m e used i n the s t u d y , i.e., one quarter.
The p r o b l e m o f simultaneous equations bias does n o t arise, and so a single equation demand f o r m o n e y can be validly estimated, because o f the well-nigh complete financial i n t e g r a t i o n w i t h the U K and the consequential h o r i z o n t a l m o n e y supply f u n c t i o n f o r I r e l a n d .
Changes i n m o n e y holdings were postulated t o depend o n changes i n permanent or expected values o f the independent variables, w h i c h were measured as weighted averages o f past values o f these variables using the A l m o n m e t h o d . The resulting equations gave a reasonably good explanation o f the e v o l u t i o n o f m o n e y holdings over the sample p e r i o d . T h e demand for m o n e y equations was then s u b m i t t e d t o t w o stability tests recently devised. The b r o a d m o n e y ( M 3 ) and deposit account equations passed b o t h stability tests, while the M l failed one o f these tests.
The parameter estimates o f the demand for m o n e y f u n c t i o n are q u i t e plausible. For M 3 , the permanent income elasticity is 0 . 8 1 , while the elas ticities w i t h respect t o the expected deposit rate, the expected Treasury B i l l rate and the expected i n f l a t i o n rate are respectively 0.32, —0.18 and —0.07. F o r deposit accounts, the permanent income and expected i n f l a t i o n rate elasticities are v i r t u a l l y the same as for the corresponding elasticity for M 3 , while the o w n rate o f interest is larger as expected.
REFERENCES
B R A I N A R D , W. and J . T O B I N , 1968. 'Pitfalls in Financial Model Building', American
Economic Review, May.
B R A U , E D U A R D H . , 1971. 'Variability of Velocity and Credit Ceilings', IMF Staff
Papers, Vol. 18, No. 3.
BROWN, R. L . , J . D U R B I N , and J . M. E V A N S , 1975. 'Techniques for Testing the Con stancy of Regression Relationships over Time', Journal of the Royal Statistical Society, Series B (Methodological), Vol. 37, No. 2.
B R O W N E , F . and T . O ' C O N N E L L , 1978. 'A Quantitative Analysis of the Degree of In tegration between Irish and U K Financial Markets', Central Bank of Ireland (mimeo.) E V A N S , J . M., 1973. 'User's Guide to T1MVAR', Research Exercise Note 10/73, U K
Central Statistical Office.
F R I E D M A N , M., 1956. 'The Quantity Theory of Money: A Restatement', from Studies
in the Quantity Theory of Money, edited by M. Friedman, Chicago University Press.
G O L D F E L D , S T E P H E N M., 1973. 'The Demand for Money Revisited', Brookings Papers
on Economic Activity, 3.
H A M B U R G E R , M I C H A E L J . , 1977. 'The Demand for Money in an Open Economy: Germany and the United Kingdom', Journal of Monetary Economics, Vol. 3, No. 1. H A R P E R , C H A R L E S P., 1977. 'Testing for the Existence of a Lagged Relationship with
Almon's Method', Review of Economics and Statistics, May.
J O H N S O N , H . G . , 1971. Macroeconomics and Monetary Theory, London: Gray-Mills Publishing L t d .
J O H N S O N , H . G . , 1977. 'The Monetary Approach to the Balance of Payments: A Non-Technical Guide', Journal of International Economics, 7.
L A I D L E R , D. E . W., 1969. 'The Definition of Money — Theoretical and Empirical Problems', Journal of Money, Credit and Banking, August.
M O D I G L I A N I , F . , R. R A S C H E and J . C O O P E R , 1970. 'Central Bank Policy, the Money Supply and the Short-Term Rate of Interest', Journal of Money, Credit and Banking, Vol. I I , No. 2.
R A M S E Y , J . B . , 1969. 'Tests for Specification Errors in Classical Linear Least-Squares Regression Analysis', Journal of the Royal Statistical Society, Series B, 31, Part 2. S H A P I R O , A. A., 1973. 'Infaltion, Lags and the Demand for Money', International
Economic Review, Vol. 14, No. 1.
A P P E N D I X I
A. Sources and Method
1. Currency is defined as I r i s h notes and c o i n o u t s t a n d i n g adjusted t o exclude holdings b y the Associated Banks. Non-Associated Banks' holdings o f notes and c o i n are negligible. The average o f F r i d a y figures i n each week was t a k e n . The source for 1962 Q l - 1967 Q3 is the Central Bank's folder o f Irish E c o n o m i c Statistics ( 1 9 7 7 ) . F r o m 1967 Q3 t o 1975 Q 4 the figures were t a k e n f r o m the Central Bank's Q u a r t e r l y Bulletins (various issues).
have been deducted f r o m Associated Bank current accounts, as published i n Quarterly Bulletins o f the Central Bank. I n order t o o b t a i n a consistent series for current accounts at Associated Banks, therefore, offsets must be added o n after A p r i l 1 9 7 1 . Current accounts o f non-Associated Banks were assumed t o be zero up t o and i n c l u d i n g 1964.
Figures for non-Associated Banks are n o t published u n t i l 1966. End-year figures are available for 1965 and 1966: the quarterly figures for 1965 and 1966 were obtained b y assuming exponential g r o w t h between the end-year figures. For 1967 and 1968 end-quarterly figures are available; f r o m 1969 onwards e n d - m o n t h l y figures are available as for the Associated Banks. Government current accounts held w i t h the Associated Banks are excluded f r o m current accounts, since we wish t o focus o n the non-bank private sector's holdings o f m o n e y balances.
3. Deposit Accounts are defined as the sum o f Associated and non-Associated Banks' deposit accounts less government deposit accounts w i t h the Associated Banks less all i n t e r b a n k balances (all o f w h i c h are assumed t o be deposit accounts). There is a d i s c o n t i n u i t y i n the deposit accounts series for the Associated Banks. F r o m M a r c h 1972 the data have been c o m p i l e d o n the basis o f full disclosure o f p r o f i t s and reserves: this disclosure had a d o w n w a r d effect o n deposits o f £ 4 0 m . Non-Associated Banks' deposit accounts include " o t h e r accounts". The source for the Associated Banks' figures is the Central Bank's A n n u a l Reports and Quar terly Bulletins. The non-Associated Banks' figures for 1966 t o 1975 were obtained f r o m the same source, for 1963 t o 1965 end-year figures are available f r o m the unpublished balance sheets o f the nonTAssociated Banks — the corresponding quarterly figures are obtained b y either linear or exponential i n t e r p o l a t i o n . I n t e r b a n k balances are obtained f r o m the M o n e y Supply Table i n the Statistical A p p e n d i x o f the Central Bank Quarterly Bulletins and f r o m i n t e r n a l Central Bank files. These are obtained b y subtracting i t e m (9) f r o m the sum o f items (1) t o (4). Before 1 9 7 1 , the M o n e y Supply Table is n o t presented i n this f o r m a t and thus the i n t e r b a n k balances before this p e r i o d were obtained f r o m the returns t o the Central Bank o f b o t h the Associated and non-Associated Banks. Discontinuities i n the m o n e t a r y series arising f r o m the bank closures o f 1966 and 1970 were dealt w i t h b y i n t e r p o l a t i n g for the missing observations.
4. Aggregate Debits are obtained f r o m the "Associated Banks: Turnover o f Current A c c o u n t s " Table o f the Statistical A p p e n d i x i n Central Bank bulletins. This series was used i n the M l equation w i t h o u t m u c h success. 5. Interest Rates, Yields. A l l interest rates are measured as either daily
ordinary deposit rate, the rate o n share accounts i n B u i l d i n g Societies, the issue rate o n Exchequer Bills and the Central Bank rediscount rate is the B a n k i n g D e p a r t m e n t o f the Central Bank. The data o n interest rates w h i c h are published i n the Central Bank bulletins relate o n l y t o the rate prevailing at the end o f each m o n t h : t a k i n g an average o f e n d - m o n t h l y data c o u l d give quite an inaccurate picture o f the average rate prevailing d u r i n g the quarter. The U K local a u t h o r i t y rate is the rate for a m i n i m u m t e r m o f three m o n t h s and thereafter, at seven days' notice. The Treasury B i l l rate is also three m o n t h s t o m a t u r i t y : the rate is expressed as a y i e l d (per cent per annum o f 365 days). The U K government security rate is the gross r e d e m p t i o n y i e l d o n short-dated (5 years t o m a t u r i t y ) government stock; i t is the rate o f interest w h i c h , i f used t o discount future dividends and the sum due at r e d e m p t i o n , makes their present value equal t o the present price o f the stock. F o l l o w i n g Hamburger ( 1 9 7 7 ) , the dividend-price r a t i o is used as a measure o f current dividends w h i c h is presumed t o be a better p r o x y o f expected future earnings than a weighted average o f current and past earnings. The last four m e n t i o n e d rates are taken f r o m the Statistical A p p e n d i x o f the Bank o f England Bulletins. For the empir ical w o r k , the rates used were the o r d i n a r y deposit rate applicable t o de posits o f less t h a n £ 2 5 , 0 0 0 , the U K Treasury B i l l rate and the B u i l d i n g Society share account rate.
6. National Accounts Data. The quarterly N a t i o n a l Income data used are calculated b y estimating f r o m their annual counterparts the i n d i v i d u a l GNP components. The p r i n c i p a l m e t h o d used was l i n k i n g t o related series using regression methods. Where this was n o t possible, the annual series were i n t e r p o l a t e d using the Boot-Feibes-Lisman program.
H Currency Current
accounts
Deposit accounts
Aggregate debits
Ordinary Building deposit society rate rate
UK Local authority rate
Treasury bill rate
Exchequer bill rate
H
E
DEMA
1 9 6 2 Q l 8 1 . 8 1 3 0 . 7 0 2 2 8 . 5 7 3 9 . .0 1.91 3 . 6 7 6.01 4 . 8 9 5 . 4 8
L
N
D
Q 2 8 2 . 3 1 3 4 . 1 9 2 3 2 . 8 8 1 5 . ,6 1.31 3 . 6 7 4 . 6 2 3 . 9 2 4 . 1 7
Q 3 8 2 . 7 1 3 5 . 6 3 2 3 9 . 5 8 0 2 . .5 1.28 3 . 6 7 4 . 7 0 3 . 8 4 4 . 1 0 o
<rri
Q 4 8 4 . 2 1 4 3 . 6 1 2 4 5 . 2 9 0 9 . .7 1.26 3 . 6 7 4 . 4 4 3 . 6 9 3 . 9 4
s 1 9 6 3 Q l 8 5 . 8 1 4 4 . 9 7 2 4 9 . 4 7 6 3 . .2 1.01 3 . 6 7 4 . 1 3 3 . 4 2 3 . 6 5 O 2 Q 2 8 7 . 9 1 4 8 . 4 1 2 5 1 . 5 9 7 0 . ,8 0 . 9 9 3 . 6 7 4 . 3 6 3 . 6 6 3 . 7 9 pi » > Q 3 8 9 . 9 1 5 4 . 4 3 2 5 4 . 6 9 2 4 . ,4 1.03 3 . 6 7 4 . 3 9 3 . 7 8 3 . 9 8
Q 4 9 1 . 1 1 5 8 . 3 3 2 5 5 . 0 9 9 4 . ,2 1.01 3 . 6 7 4 . 2 9 3 . 6 2 3 . 9 0 c 1 9 6 4 Q l 9 4 . 4 1 6 7 . 5 4 2 5 5 . 8 1 0 2 4 . .5 1.11 3 . 6 7 4 . 4 8 3 . 9 6 3 . 8 9 n
Q 2 9 7 . 3 1 6 8 . 1 2 2 5 9 . 4 9 8 8 . .5 1.49 3 . 6 7 4 . 9 7 4 . 3 6 4 . 4 4
Q 3 9 9 . 8 1 7 3 . 9 7 2 6 4 . 6 1 0 8 0 . ,9 1.54 3 . 6 7 5.21 4 . 7 2 4 . 8 8 2 Q 4 1 0 3 . 3 1 7 7 . 5 1 2 7 0 . 1 1 0 6 7 . ,9 1.8.4 3 . 6 7 6 . 2 9 5 . 7 8 5 . 5 5
2 1 9 6 5 Q l 1 0 3 . 9 1 7 9 . 2 8 2 7 6 . 6 1 0 6 9 .4 2 . 4 2 3 . 7 0 7.31 6 . 2 6 6 . 6 0
Q 2 1 0 3 . 7 1 8 2 . 3 2 2 8 2 . 5 1 0 7 2 , .7 2 . 5 0 3 . 7 0 6 . 9 2 6 . 0 7 6 . 4 8 Pi Q 3 1 0 4 . 4 1 8 3 . 6 5 2 9 2 . 2 1 1 3 2 . .2 2 . 5 7 3 . 7 0 6.71 5 . 6 6 5 . 9 3 > Q 4 1 0 5 . 4 1 8 5 . 0 2 2 9 7 . 6 1 1 3 3 . .8 2 . 5 2 3 . 7 0 6 . 2 3 5 . 2 7 5 . 7 0 2
D 1 9 6 6 Q l 1 0 6 . 6 1 9 2 . 5 8 3 0 9 . 4 1 1 0 0 . .2 2 . 4 0 3 . 8 8 6 . 0 8 5 . 3 5 5 . 5 8 Pi Q 2 1 0 9 . 0 1 9 9 . 7 3 3 2 0 . 2 1 0 5 1 . ,3 2.51 3 . 8 8 6 . 3 7 5 . 6 6 5 . 8 4 H Q 3 1 1 0 . 5 1 9 9 . 4 5 3 3 1 . 5 1 1 0 7 . .0 3 . 0 3 3 . 8 8 7 . 5 0 6 . 6 7 6 . 7 2
0 4 1 1 1 . 1 2 0 2 . 0 3 3 4 5 . 6 9 7 4 . .3 3 . 5 5 3 . 8 8 7.30 6 . 4 5 6 . 8 8 >
1 9 6 7 Q l 1 1 2 . 6 1 9 9 . 0 8 3 5 2 . 0 1 2 5 4 , .1 3 . 3 6 3 . 8 8 6.31 5 . 7 6 6 . 2 3 5 Q 2 114.1 2 0 1 . 4 7 3 6 6 . 1 1 3 4 3 . .9 2 . 8 9 4 . 3 8 5 . 7 0 5 . 3 4 5 . 7 6 2 Q 3 1 1 6 . 6 2 1 0 . 0 9 3 8 3 . 0 1 3 3 4 . .6 2 . 5 5 4 . 3 8 5 . 6 6 5 . 3 6 5 . 5 9 R° Q 4 1 1 8 . 6 2 1 8 . 9 2 3 9 1 . 0 1 3 5 2 . .4 3 . 3 3 4 . 3 8 7.01 6 . 4 3 6 . 3 8 H
j> 1 9 6 8 Q l 1 2 0 . 2 2 1 8 . 5 6 4 1 5 . 9 1 3 9 7 . .3 4 . 1 0 4 . 3 8 7 . 8 5 7 . 1 3 7 . 3 9 ES Q 2 1 2 2 . 2 2 2 2 . 0 4 4 4 0 . 6 1 4 3 3 . .7 4 . 2 6 4 . 3 8 8 . 3 4 7.24 7 . 5 7 f
to
Currency Current accounts Deposit accounts Aggregate debits Ordinary deposit rate Building society rate UK Local authority rate Treasury bill rate Exchequer bill rate
1 9 6 9 Q l Q 2 Q 3 Q 4
1 2 9 . 5 1 3 0 . 4 1 3 1 . 7 1 3 4 . 4
2 3 7 . 4 8 2 3 7 . 1 2 2 4 1 . 7 9 2 4 2 . 0 4
5 1 3 . 2 5 2 9 . 8 5 5 1 . 2 5 7 4 . 4
1 6 6 5 . 9 1 8 6 5 . 1 1 7 9 8 . 0 1 8 6 0 . 0
3 . 5 9 4 . 4 8 4 . 5 3 4 . 6 0
4 . 3 8 4 . 3 8 5 . 3 8 5 . 3 8
8 . 0 8 9 . 2 2 9 . 5 2 9 . 3 0
7.04 8 . 1 4 7 . 9 2 7 . 7 5
7 . 3 7 8 . 5 0 8.41 8 . 2 5
1 9 7 0 Q l Q 2 Q 3 Q 4
1 3 8 . 8 143.1 1 4 6 . 4 1 4 8 . 5
2 5 6 . 1 3 2 6 5 . 4 7 2 6 8 . 7 7 2 7 4 . 2 3
5 8 7 . 2 6 1 1 . 2 6 3 7 . 1 6 6 3 . 1
1 9 5 0 . 9 1 9 7 2 . 5 2 0 8 5 . 8 2 0 2 0 . 1
4 . 4 1 4 . 4 5 4 . 5 6 4 . 5 8
5 . 5 0 5 . 5 0 5 . 5 0 5 . 5 0
8 . 7 4 8 . 2 7 7 . 4 5 7.34
7 . 4 2 7 . 2 0 6 . 8 5 6 . 7 8
7 . 8 3 7 . 6 5 7 . 2 9 7 . 1 7
1 9 7 1 Q l Q 2 Q 3 Q 4
1 5 3 . 0 1 5 7 . 5 1 6 0 . 3 1 6 5 . 2
2 8 6 . 7 9 2 9 7 . 0 6 3 0 2 . 9 0 3 1 4 . 1 8
6 8 1 . 3 6 9 5 . 4 7 1 2 . 2 7 3 9 . 4
2 1 1 3 . 4 2 1 2 0 . 8 2 4 8 0 . 6 2 6 1 5 . 6
4 . 4 1 3 . 9 4 3 . 8 5 3 . 0 2
5 . 5 0 5 . 5 0 5 . 5 0 5 . 5 0
7 . 2 2 6 . 6 5 6 . 2 7 4 . 9 0
6 . 6 7 5 . 9 8 5 . 3 6 4 . 4 4
6 . 9 8 6.31 5 . 7 0 4 . 6 8
1 9 7 2 Q l Q 2 Q 3 Q 4
1 6 7 . 3 1 7 0 . 8 1 7 6 . 3 1 8 0 . 6
3 3 4 . 0 4 3 5 6 . 9 7 3 5 6 . 7 3 3 6 0 . 7 3
7 3 9 . 9 7 5 0 . 2 7 9 5 . 6 8 3 5 . 8
2 6 4 8 . 8 2 8 3 0 . 7 2 9 0 8 . 3 3 3 1 0 . 9
2 . 9 3 2 . 9 7 3 . 3 2 3 . 9 8
5 . 5 0 5 . 5 0 5 . 5 0 5 . 5 0
4 . 6 0 5 . 4 6 7 . 5 2 7 . 9 8
4 . 3 2 4 . 9 0 5 . 9 5 7 . 0 6
4 . 5 1 5 . 0 0 6 . 1 2 7 . 2 4
1 9 7 3 Q l Q 2 Q 3 Q 4
1 8 8 . 0 1 9 3 . 9 2 0 1 . 4 2 0 7 . 4
3 6 8 . 0 5 3 6 6 . 9 9 3 8 1 . 0 8 3 8 6 . 8 8
9 0 5 . 4 9 7 1 . 5 1 0 4 1 . 6 1 1 4 0 . 8
3 5 6 9 . 6 3 6 8 7 . 9 3 7 2 5 . 0 4 0 7 5 . 5
4 . 6 7 6 . 0 3 7 . 2 3 9 . 4 0
5 . 6 7 6 . 3 3 7.00 8 . 0 0
9.61 9 . 7 7 1 1 . 8 1 1 4 . 0 3
8 . 1 9 7 . 8 6 1 0 . 2 3 1 1 . 5 0
8 . 5 6 7 . 9 5 9 . 8 4 1 1 . 5 3
1 9 7 4 Q l Q 2 Q 3 Q 4
2 1 1 . 7 2 1 8 . 1 2 2 3 . 6 2 3 0 . 5
3 7 6 . 5 0 3 7 2 . 7 4 3 7 0 . 3 7 3 7 3 . 5 2
1 2 1 6 . 9 1 2 8 4 . 7 1 3 4 7 . 8 1 4 4 6 . 3
4 4 3 3 . 7 4 1 0 2 . 5 5 4 8 3 . 4 5 0 1 3 . 5
1 0 . 1 5 1 0 . 3 7 9 . 5 0 8 . 8 6
8 . 0 0 8 . 0 0 8 . 0 0 8 . 0 0
1 4 . 7 6 1 4 . 3 8 1 2 . 8 2 1 2 . 0 7
1 2 . 2 6 1 2 . 3 6 1 1 . 3 6 1 0 . 7 8
1 1 . 9 7 1 2 . 2 8 1 1 . 5 0 1 0 . 6 3
1 9 7 5 Q l Q 2 Q 3 Q 4
2 4 0 . 4 2 4 9 . 8 2 6 0 . 4 2 7 2 . 6
3 8 7 . 9 0 4 0 8 . 2 4 4 3 5 . 1 7 4 5 5 . 7 0
1 5 1 6 . 3 1 5 4 7 . 9 1 6 0 5 . 0 1 7 2 9 . 8
5 6 4 0 . 7 6 8 9 9 . 2 7 5 4 6 . 1 7 7 9 9 . 8
8 . 2 5 7 . 5 6 7 . 9 5 7 . 3 6
8 . 0 0 8 . 0 0 8 . 0 0 8 . 0 0
10.91 1 0 . 7 2 1 0 . 4 0 1 1 . 0 0
1 0 . 2 2 1 0 . 1 5 1 0 . 3 5 1 0 . 8 5
1 0 . 2 2 1 0 . 1 8 1 0 . 3 9 1 0 . 8 1
Short-term UK Govt, security rate Dividend/ price ratio Central Bank rediscount rate Personal consumers' expenditure in constant (1970) prices Nominal consumers' expenditure
C.P.I. Nominal GNP
Real GNP (1970 prices)
1 9 6 2 Q l Q 2 Q 3 Q 4 1 9 6 3 Q l
Q 2 Q 3 Q 4
1 9 6 4 Q l Q 2 Q 3 0 4 1 9 6 5 Q l
Q 2 Q 3 Q 4 1 9 6 6 Q l
Q 2 Q 3 Q 4 1 9 6 7 Q l
Q 2 Q 3 Q 4 1 9 6 8 Q l
Q 2 Q 3 Q 4
5 . 8 3 5 . 4 0 4 . 9 7 4 . 6 0 4 . 8 3 4 . 9 2 4 . 6 4 4 . 5 6
4 . 9 1 4 . 9 9 5 . 3 7 5 . 8 3 6 . 6 0 6 . 7 9 6 . 8 5 6 . 5 9 6 . 6 0 6.81 7 . 3 0 6 . 8 7 6 . 5 4 6 . 3 5 6 . 5 9 7 . 1 5
7 . 4 7 7 . 5 6 7.66 7 . 7 0
5 . 0 0 5 . 1 0 5 . 5 2 4 . 9 4 4 . 4 9 4 . 3 1 4 . 0 1 3 . 6 0 3 . 9 6 3 . 9 7 3 . 9 0 4 . 6 4 4 . 9 1 5 . 4 3 5 . 7 0 4 . 8 1 4 . 7 0 4 . 4 6 6 . 0 6 6 . 3 5 5 . 6 9 4 . 7 1 4 . 1 6 3 . 4 0 3.01 2 . 2 8 1.93 1.87
5 . 5 2 4 . 3 0 4 . 1 8 4 . 0 2 3 . 6 8 3 . 8 9 4 . 0 6 3 . 9 6
4 . 0 6 4 . 5 2 4 . 9 3 5 . 6 5 6 . 6 4 6 . 6 3 6 . 0 4 5 . 8 4 5 . 6 8 5 . 9 7 6 . 8 8 6 . 9 0
6 . 3 6 5.81 5 . 5 9 6 . 7 4
7 . 4 7 7 . 5 5 7.40 6 . 9 0
2 1 0 . 7 0 2 0 7 . 0 5 2 0 7 . 3 1 2 1 3 . 9 0 2 1 0 . 4 5 2 1 9 . 2 2 2 1 9 . 9 1 2 2 3 . 0 7
2 2 5 . 6 4 2 2 8 . 0 2 2 2 9 . 2 4 2 2 8 . 4 4 2 2 8 . 6 6 2 3 0 . 1 6 2 2 9 . 5 6 2 2 7 . 9 3 2 2 7 . 6 4 2 2 7 . 3 3 2 4 1 . 0 0 2 3 8 . 6 4 2 3 9 . 0 7 2 3 7 . 6 6 2 4 3 . 5 9 2 4 8 . 4 3
2 5 2 . 1 1 2 6 0 . 6 2 2 6 7 . 6 5 2 6 9 . 5 9
1 3 9 . 5 2 1 3 8 . 6 4 1 3 8 . 9 8 1 4 2 . 8 6 1 4 4 . 2 0 1 4 7 . 6 9 1 4 9 . 0 2 1 5 5 . 9 7
1 5 9 . 8 6 1 6 5 . 8 0 1 6 9 . 5 1 1 7 0 . 4 9
1 7 3 . 5 5 1 7 5 . 4 4 1 7 6 . 7 9 1 7 6 . 2 2 1 7 7 . 0 4 1 7 8 . 5 2 1 9 3 . 8 2 1 9 2 . 9 0 1 9 3 . 4 9 1 9 3 . 8 1 1 9 9 . 9 5 2 0 6 . 3 0 2 1 3 . 4 4 2 2 2 . 8 6 2 3 1 . 1 2 2 3 7 . 3 9
7 5 . 8 0 7 7 . 8 0 7 7 . 4 0 7 7 . 2 0
7 8 . 5 0 7 8 . 3 0 7 8 . 2 0 8 0 . 6 0 8 1 . 1 0 8 4 . 3 0 8 5 . 3 0 8 6 . 2 0 8 7 . 2 0 8 8 . 7 0 8 9 . 0 0 8 9 . 0 0 8 9 . 1 0 9 0 . 7 0 9 2 . 2 0 9 2 . 4 0
9 2 . 6 0 9 4 . 2 0 9 4 . 2 0 9 4 . 8 0 9 6 . 8 0 9 8 . 3 0 9 8 . 5 0 1 0 0 . 0 0
1 9 2 . 3 5 1 8 8 . 9 5 1 8 8 . 0 4 1 9 6 . 2 5
1 9 7 . 2 8 2 0 3 . 2 6 2 0 6 . 8 8 2 1 2 . 7 1
2 2 6 . 6 7 2 3 2 . 6 0 2 3 3 . 7 9 2 3 9 . 5 7
2 3 6 . 7 3 2 4 7 . 9 4 2 5 6 . 4 0 2 5 5 . 0 0 2 6 0 . 3 6 2 5 5 . 9 9 2 6 4 . 1 3 2 7 1 . 7 3 2 7 4 . 6 3 2 8 4 . 1 3 2 9 0 . 7 7 2 9 8 . 7 7 3 0 4 . 2 0 3 2 1 . 9 3 3 3 1 . 5 2 3 4 0 . 7 2
3 0 1 . 0 5 2 9 4 . 2 1 2 9 3 . 8 8 3 0 5 . 3 1
3 0 0 . 7 9 3 1 3 . 4 9 3 1 7 . 2 8 3 1 6 . 3 0
Short-term Dividend/ Central Personal Nominal C.P.I. Nominal Real
UK Govt. price fiank consumers' consumers' GNP- GNP
security ratio rediscount expenditure expenditure (1970
rate rate in constant prices)
(1970)
prices) prices
1 9 6 9 Q l 8 . 2 6 1.90 Q 2 8 . 9 4 2.41-Q 3 9 . 0 8 2 . 9 4 Q 4 8 . 9 3 2 . 7 6 1 9 7 0 Q l 8 . 5 6 2 . 6 8 Q 2 7.99 3 . 6 3 Q 3 7.41 3 . 3 3 Q 4 7.76 3.31 1 9 7 1 Q l 7 . 6 2 3 . 2 4 Q 2 7.09 2.31 Q 3 6 . 6 5 1.96 Q 4 6 . 1 0 1.90 1 9 7 2 Q l 6 . 0 2 1.54 Q 2 6 . 8 2 1.53 Q 3 8 . 7 9 1.58 Q 4 8 . 9 7 1.59 1 9 7 3 Q l 9 . 3 4 2 . 0 0 Q 2 9 . 2 0 1.98 Q 3 1 1 . 0 5 2 . 3 3 Q 4 1 2 . 1 4 2 . 8 5 1 9 7 4 Q l 1 2 . 7 2 4 . 1 9 Q 2 1 2 . 2 6 5 . 7 9 Q 3 1 2 . 2 9 1 0 . 4 9 Q 4 1 2 . 6 8 1 5 . 9 2 1 9 7 5 Q l 1 1 . 5 3 6 . 1 4 Q 2 1 0 . 9 5 4 . 5 8 Q 3 1 1 . 5 9 4 . 6 5 Q 4 1 2 . 0 2 3 . 6 3
7 . 2 8 2 6 3 . 1 2 2 3 7 . 9 5 8 . 7 4 2 8 4 . 1 8 2 5 9 . 8 9 8 . 4 4 2 8 2 . 4 5 2 6 3 . 8 4 8 . 2 8 2 8 1 . 5 1 2 6 5 . 8 6
7 . 9 2 2 8 9 . 6 0 2 7 5 . 9 3 7 . 6 6 2 7 9 . 3 2 2 7 6 . 2 2 7 . 3 4 2 8 2 . 1 9 2 8 5 . 3 6 7 . 2 7 2 9 1 . 4 2 3 0 3 . 2 0 7 . 0 8 2 9 1 . 2 5 3 0 5 . 8 2 6.61 2 9 1 . 9 4 3 1 4 . 3 0 6 . 0 5 2 9 3 . 7 6 3 2 3 . 9 1 5 . 2 5 2 9 8 . 3 2 3 3 7 . 7 4 4 . 6 7 3 0 6 . 1 5 3 5 1 . 5 4 5 . 0 8 3 0 8 . 2 7 3 5 9 . 0 5 6 . 1 8 3 0 9 . 4 1 3 7 3 . 9 0 7 . 2 6 3 1 5 . 9 9 3 9 1 . 8 6 8 . 2 6 3 2 3 . 6 8 4 1 4 . 9 2 8 . 8 9 3 2 8 . 5 3 4 3 3 . 1 9 9 . 7 3 3 2 5 . 9 1 4 4 1 . 8 1 1 1 . 0 6 3 2 6 . 1 5 4 5 5 . 4 3 1 2 . 3 2 3 2 9 . 3 2 4 7 2 . 9 8 1 2 . 8 0 3 2 9 . 5 0 4 9 5 . 3 1 1 2 . 1 2 3 2 5 . 7 5 5 1 1 . 1 4
.LULL 3 1 7 . 4 4 5 2 5 . 5 6
1 0 . 8 9 3 1 0 . 9 0 5 5 0 . 5 3 1 0 . 4 4 3 0 3 . 9 9 5 7 1 . 2 9 1 0 . 1 2 3 1 5 . 4 7 5 9 5 . 6 6 9 . 8 3 3 2 7 . 5 1 6 4 3 . 2 6