The Monetary Contraction of 2008/09: Assessing UK Money Supply Measures in Light of the Financial Crisis

Abstract

Following the 2008/09 financial crisis renewed attention has been given to the ability of central banks to effectively monitor the quantity of money in circulation. We present a new definition of the money supply called “Austrian money supply” (MA) and apply it to the UK economy. Unlike conventional measures this suggests that the UK suffered a monetary contraction in from July 2008 until July 2009. We find further evidence that MA provides a constructive interpretation of broader macroeconomic activity and warrants attention from academics and policymakers.

Keywords: asset bubble, credit creation, liquidity, monetary policy, money supply

JEL Classification: B53, E41, E51, E52