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Working Paper 1984-011A

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"Money and Activity in the U.K. 1961-1983: Surprise? Surprise!"
by K. Alec Chrystal, and David Peel

This is a study of the impact of money growth and money growth surprises on U.K. real activity (GDP and unemployment). We find no support for the 'only surprises have real effects' story except in the1960s when the fixed exchange rate regime makes exogeneity of money questionable. Some support is found for the older monetarist view that lagged actual money growth has real effects. Our most surprising result is that U.S. M1 growth outperforms both U.K. M1 and sterling M3 as a determinant of U.K. real activity in the floating exchange rate period.

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