I have recently updated an “Austrian” measure of the UK money supply labelled MA. The Executive Summary is as follows:
The 2008/09 financial crisis and subsequent recession has created renewed attention to UK monetary aggregates. This discussion paper argues that although measures of the money supply are crucial to understanding the economy, existing approaches are flawed: “Notes and Coin” is too narrow, and M4 is too broad. An alternative measure that is based on the Austrian school approach to the definition of money (MA) is proposed, which indicates the following:
- From January 2008 – January 2009 MA fell from a monthly growth rate of 27.9% to one of – 3.9%
- In the 30 months from December 2008 – May 2011 MA grew in 6 of them but contracted in 24
This finds evidence to support the conventional wisdom that a sustained and increasing monetary expansion during the “great moderation” was followed in 2008 by a catastrophic slowdown in money creation that has become a sustained monetary contraction.
Note that in May 2011 MA fell by -5.9% (compared to the previous year), meaning that it has been contracting since October last year. The monetary deflation that has followed the financial crisis shows no signs of abating.