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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

Edward Nelson

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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