Monetary Targets and The Public Sector Borrowing Requirement

Abstract

The objective of this paper is to explore the relationship between the Public Sector Borrowing Requirement (PSBR) and the growth of the money stock in the short to medium term. If the government sets itself a monetary target, it is naturally interested in what fiscal policies, and what associated PSBRs, are consistent with the target. Of course, this is only one of the many ways of looking at the PSBR but it is an important one. The discussion refers mostly to £ M3, the aggregate in terms of which the UK government’s monetary target is expressed.

This article is reproduced by permission of the Controller of Her Majesty’s Stationery Office.

We gratefully acknowledge the assistance which we have received from colleagues in the Treasury, and especially from Steven Bell. Others who have helped include Stephen Powell, Gary Roberts, Peter Spencer and Ralph Wilkinson. We have made one or two revisions in the light of the discussion at the City University conference.