Analysing Narrow Money



When Nigel Lawson was appointed Chancellor of the Exchequer in the summer of 1983, immediately after the return of the Conservative party to a second term of office, he embarked upon a review of the Medium Term Financial Strategy (MTFS). The authorities had realised, when they first introduced the MTFS, that ‘no single statistical measure of the money supply can be expected fully to encapsulate monetary conditions, and so provide a uniquely correct basis for controlling the complex relationships between monetary growth and prices and nominal incomes’1. Certainly, as discussed in the previous chapter, interpretation of £M3 had proved particularly difficult in the early 198Os. In 1982 this was given explicit recognition by the introduction of M1 and PSL2 as supplementary monetary targets. Furthermore, the authorities came to stress more strongly the importance of the examination of a range of financial and economic variables when judging the stance of monetary policy. These included such variables as the exchange rate, asset prices and the behaviour of inflation itself.


Interest Rate Money Supply Money Market Cash Holding Short Term Interest Rate 
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Notes and References

  1. 2.
    N. Lawson, ‘The Chancellor’s Mansion House Speech’, (H.M. Treasury, 20th October 1983 ).Google Scholar
  2. 3.
    N. Lawson, ‘The Chancellor’s Mansion House Speech’, (H.M. Treasury, 18th October 1984 ).Google Scholar
  3. 4.
    See, for example, M. Friedman, ‘The Quantity Theory of Money — A Restatement’, in M. Friedman (ed.), Studies in the Quantity Theory of Money (University of Chicago Press, 1956 )Google Scholar
  4. 5.
    R. B. Johnston, ‘The demand for non-interest bearing money in the United Kingdom’, Treasury Working Paper Number 28, (February 1984).Google Scholar
  5. 6.
    N. Lawson, ‘The Chancellor’s Mansion House Speech’, (H.M. Treasury, 20th October 1983 ).Google Scholar
  6. 7.
    See, for example, T. C. Mills, ‘The Information Content of Monetary Aggregates’, Bulletin of Economic Research, (May 1983), pp 25–46.Google Scholar
  7. 8.
    T. C. Mills and M. J. Stephenson, ‘The information content of MO’, University of Leeds mimeo.Google Scholar
  8. 13.
    H. M. Treasury, ‘H. M. Treasury Macreconomic Model: Supplement to the 1982 Technical Manual’, ( June 1984 ).Google Scholar
  9. 14.
    C. A. E. Goodhart, M. D. K. W. Foot and A. C. Hotson, ‘Monetary Base Control’, BEQB, June 1979, pp 149–159.Google Scholar

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© Paul Temperton 1986

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