Finance and Economics Discussion Series (FEDS)
June 2018 (Revised August 2019)
The Money View Versus the Credit View
We evaluate the relative merits of the "money view" and "credit view" as accounts of macroeconomic outcomes. We first lay out core elements of the money view as articulated by Friedman and Schwartz. We then reconsider the findings regarding the money view versus the credit view in recent literature. Schularick and Taylor's (2012) result that credit outperforms money in predicting financial crises is fully consistent with the money view of macroeconomic outcomes; consequently, one needs to examine those outcomes directly to discriminate between the money view and the credit view. Our analysis of the postwar evidence suggests that money outperforms credit in predicting economic downturns in the 14 countries included in the Schularick-Taylor database. For our reexamination of the evidence, we have constructed new, more reliable, annual data on money.
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Keywords: credit view, financial crises, money view, recessions, transmission mechanism
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