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St. Louis Models of the UK Economy

Published online by Cambridge University Press:  26 March 2020

K.G.P. Matthews  and
P.A. Ormerod
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Abstract

The economists at the Federal Reserve Bank of St Louis in the United States have produced over a number of years a series of models which amount to a reassertion of the short-run quantity theory of money. This theory has been summarised by Tobin as ‘in the short-run, nominal income is proportional to the supply of money, although changes in nominal income may affect output as well as prices’. In other words, it is postulated that in the short-run there is a large and rapid influence of monetary actions on nominal income relative to that of fiscal actions and, indeed, that fiscal action unaccompanied by changes in money has little net effect on national output even in the short-run. This is an extreme version of the monetarist position, given that most monetarists, including Friedman, choose to work in the framework of the long-run rather than the shortrun quantity theory.

Type
Articles
Information
National Institute Economic Review , Volume 84 , May 1978 , pp. 65 - 69
Copyright
Copyright © 1978 National Institute of Economic and Social Research

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Footnotes

(1)

The authors are grateful for comments given by members of the SSRC Money Study Group, and in particular by P. D. Spencer of HM Treasury.

References

(2) See, for example, L. C. Andersen and J. L. Jordan, ‘Monetary and fiscal actions: a test of their relative importance in economic stabilization’, Federal Reserve Bank of St Louis Review, December 1968, pp. 11-24; L. C. Andersen and K. M. Carlson, 1970, ‘A monetarist model for economic stabilization’, Federal Reserve Bank of St Louis Review, April 1970, pp. 7-23.

(3) J., Tobin ‘Friedman's theoretical framework', p. 85 in R. Gordon, ed., ‘Milton Friedman's monetary framework’. University of Chicago Press, 1974.

(4) A. S. Blinder and R. M. Solow, 1974, ‘Analytical foundations of fiscal policy’ in The economics of public finance, Brookings Institue.

(5) G. Fromm and L. R. Klein, ‘A comparison of econometric models of the US economy’, American Economic Review, 63, 1973, pp. 385-394.

(6) F. Modigliani and A. Ando, ‘Impacts of fiscal actions on aggregate income and the monetarist controversy: theory and evidence’ in J. Stein, ed., Studies in Monetary Economics, Vol. 1, Monetarism, North Holland Press, 1976, pp. 17-42, and comments by Schwartz, Klein, Gordon, and Darby, pp. 43-68.

(7) M. J. Artis and A. R. Nobay, Two aspects of the mone tary debate', National Institute Economic Review, no. 49, August 1969, pp. 33-51.

(1) All data are seasonally adjusted, the ΔM variable explicitly by using the TSP programme.

(2) R. W. R. Price, ‘Budgetary policy’ in F. T. Blackaby, ed., British Economic Policy, Cambridge University Press, 1978, (forthcoming).

(1) G. A. Renton (ed.), Modelling the economy, Heinemann, 1975.

(2) J. S. E. Laury, G. R. Lewis and P. A. Ormerod, ‘Properties of macroeconomic models of the UK economy’, National Institute Economic Review, no. 83, February 1978.

(1) S. M. Goldeld, ‘The case of the missing money’ in Brookings Papers on Economic Activity, 3, 1976, pp. 683-740.

(2) Interestingly, when actually estimated through 1976 II, the St Louis equation shows a significant positive impact of fiscal policy. Cf: B. M. Friedman, ‘Even the St Louis model believes in fiscal policy, Journal of Money, Credit, and Banking, vol. 9, no. 2, 1977, pp. 365-7.

(3) F. Modigliani, ‘The monetarist controversy, or should we forsake stabilization policies?’, American Economic Review, 67, no. 2, 1977, pp. 1-19.

(4) Op cit.

(5) Notes and coin in circulation plus bankers restricted and unrestricted deposits at the Bank of England.

(6) Using fourth-order polynomial Almon lags, which are used for all results reported below.