mm sic rest ere a economic aase

7/31/2019 Mm Sic Rest Ere a Economic Aase

1/20

Money matters for growth in the

short term

Florin CituJune 2012 Bucharest Romania

F L O R I N C I T U A D V I S O R Y


2/20

"If the coin be locked up in chests, it is thesame thing with regard to prices, as if it were

annihilated." David Hume Of Money

M*V=P*Y

Money Matters



3/20

M1 and CPI, a match made in heaven


0

1E+10

2E+10

3E+10

4E+10

5E+10

6E+10

7E+10

8E+10

9E+10

1E+11

0

50

100

150

200

250

300

350

400

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

CPI M1


4/20

The story is not new



5/20

It is TRUE: higher money growth is

correlated with higher prices


0

50

100

150

200

250

300

-50 0 50 100 150 200 250

M1GW

INFEOP


6/20

There is a positive relationship betweenmoney growth and inflation (.65 correlation

coefficient)

Not a surprise as most economists believe inthe inflationary monetary policies

Basically: no money no inflation

We all agree about the long run

money inflation relationship



7/20

Referring to the Great Depression Friedmanand Schwartz argued that "the contraction isin fact a tragic testimonial to the importance

of monetary forces [p. 300; all page referencesrefer to Friedman and Schwartz, 1963]."

Also Friedman said monetary policy canprevent money itself from being a majorsource of economic disturbance.

Or, in the short term if M falls PY can fall also

What about the short term?



8/20

Stock of money market deposits falls

by half in October 2008


0.0

5,000.0

10,000.0

15,000.0

20,000.0

25,000.0

03.01.2006 03.01.2007 03.01.2008 03.01.2009 03.01.2010 03.01.2011 03.01.2012

Depozite interbancare (stoc); volum (mil.lei) PMZ_VD


9/20

Money market interest rates


0.00

5.00

10.00

15.00

20.00

25.00

30.00

35.00

40.00

45.00

50.00

03.01.2006 03.01.2007 03.01.2008 03.01.2009 03.01.2010 03.01.2011 03.01.2012

Depozite interbancare

(tranzacii); rata dobnzii (% p.a.)

PMZ_RT


10/20

What did monetary policy do?


-30.0

-20.0

-10.0

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

M1 (yoy%ch)

Cash (yoy %ch)

Overnight deposits (yoy%ch)


11/20

23 octombrie 2008 Completarea normei privind funcionarea pieei monetare

interbancare cu o prevedere destinat anomaliilor depia:

n cazul n care nivelul ratei dobnzii ROBOR depete cumai mult de 25la sut nivelul ratei dobnzii pentru facilitateade credit a BNR, bancacentral poate suspenda temporarpublicarea indicilor ROBID/ROBORcalculai pe baza cotaiilorbncilor participante

n aceast situaie, BNR va publica indicii ROBID/ROBORstabilii astfel: ROBID pe toate scadenele, la nivelul ratei dobnziipentru facilitatea de depozit a bncii centrale; ROBOR pe toatescadenele, la nivelul rateidobnzii pentru facilitatea de credita bncii centrale

What does explain lower MM rates

after December 2008?



12/20

Money and NGDP



13/20

Money, NGDP, RGDP


-20.00

-10.00

0.00

10.00

20.00

30.00

40.00

50.00

60.00

70.00

-10.0

0.0

10.0

20.0

30.0

40.0

50.0

2001Q1

2001Q2

2001Q3

2001Q4

2002Q1

2002Q2

2002Q3

2002Q4

2003Q1

2003Q2

2003Q3

2003Q4

2004Q1

2004Q2

2004Q3

2004Q4

2005Q1

2005Q2

2005Q3

2005Q4

2006Q1

2006Q2

2006Q3

2006Q4

2007Q1

2007Q2

2007Q3

2007Q4

2008Q1

2008Q2

2008Q3

2008Q4

2009Q1

2009Q2

2009Q3

2009Q4

2010Q1

2010Q2

2010Q3

2010Q4

2011Q1

2011Q2

2011Q3

2011Q4

NGDP RGDP M1


14/20

Granger causality test shows that M1

does influence NGDP


Pairwise Granger Causality Tests

Date: 06/06/12 Time: 00:15

Sample: 2001Q1 2011Q4

Lags: 3

Null Hypothesis: Obs F-Statistic Probability

NGDP does not Granger Cause M1 41 0.40613 0.74955M1 does not Granger Cause NGDP 2.50910 0.07526


Date: 06/06/12 Time: 00:17

Sample: 2001Q1 2011Q4

Lags: 2


NGDP does not Granger Cause M1 42 0.80556 0.45452

M1 does not Granger Cause NGDP 4.27513 0.02136


15/20

Granger causality test shows that M1

does influence RGDP



Date: 06/06/12 Time: 00:19

Sample: 2001Q1 2011Q4

Lags: 3


M1 does not Granger Cause RGDP 41 3.25432 0.03349

RGDP does not Granger Cause M1 1.10426 0.36084


Date: 06/06/12 Time: 00:21

Sample: 2001Q1 2011Q4

Lags: 2


M1 does not Granger Cause RGDP 42 2.65023 0.08401

RGDP does not Granger Cause M1 1.73894 0.18976


16/20

RGDP responds positively after one

quarter to an increase in M1


-2

-1

0

1

2

3

1 2 3 4 5 6 7 8 9 10

Response of RGDP to M1

Response to Cholesky One S.D. Innovations 2 S.E.


17/20

NGDP responds instantaneously to an

increase in M1


-2

-1

0

1

2

3

4

1 2 3 4 5 6 7 8 9 10

Response of NGDP to M1

Response to Cholesky One S.D. Innovations 2 S.E.


18/20

Money and credit


-20.0

-10.0

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

M1 Credit


19/20

Milton Friedman: Rapid increases in thequantity of money produce inflation. Sharp

decreases produce depression.

Sudden decreases affect short term growth viaMM and the credit channel.

Information offered by Money supply and itscomponents should not be ignored, either in

the short term or long term.

Money via MM and growth in the

short term



20/20


F L O R I N C I T U A D V I S O R YAn Indepndent Advisory And Consulting Company

Bucharest, Romania

email:[email protected]

Telephone: +40727642085

mm sic rest ere a economic aase

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