November 1964 ANK OF ST. LOUIS

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CONTENTS Money Supply in Five Page Money Supply in Five ill: ' fill; Countries, 1951-1964.. 1 lift; Countries, 1951-1964 1 Production and Money i i ® i l l -ONEY SUPPLY STATISTICS1 for five leading industrial na­ Expand Rapidly—with neither Price Inflation tions are presented in the accompanying tables and charts. It is nor interest Rate In­ hoped that readers may find the data, presented in the manner creases outlined below, more useful than in their original form.2 Although Employment and Popula­ the major interest in studying money supply behavior lies in relat­ tion Trends in the Cen­ ing it to economic activity, this has not been done in this pre­ tra Valley 10 liminary article.3 However, readers who have followed the finan­ cial history of the respective countries may find that they can Economic Indicators—St. infer the causes of variation in the rate of change of money supply Louis and Louisville.. 15 from time to time or the possible economic effects of this variation. According to one view, monetary policy is “policy employing the central bank's control of the supply of money as an instru­ ment for achieving the objectives of general economic policy/ 4 It is not assumed in this article that any or all of these countries at any or all times necessarily sought to achieve a certain increase or decrease in the money supply. Rather, money supply data are presented in a manner that may be more readily used by any who think that money supply changes may be one useful ex post indi-

1 Data for the four foreign countries are derived from International Financial Statis­ Volume 46 • Number 11 tics, published by the International Monetary Fund. For the U. S., Federal Re­ serve Board data are used. FEDERAL RESERVE BANK 2 See this Review, , for a similar presentation covering U. S. mon­ etary experience since 1914. OF ST. LOWS 3 For a discussion of the rough relationship between recent monetary change and other economic variables in five foreign countries, see this Review, , P.O. BOX 442, St. Louis, Ate. 63166 p. 6. 4 Harry Johnson, “Monetary Theory and Policy,” The American Economic Review , Vol. LII, No. 3, , p. 335.

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Money Supply in Five

Annual Rates of Change

P e r C e n t Per Cent 10 r 10 L i r ■ i ! i r\ (

------j------1 -- 0

1 i ! i J i -10 C an ad a

G erm an y

..." ! | j 1 ! 1 ! ! ! 1 i ! r v . L : „ ! A . / ^ \ /\ s y — — 2i_|------y ------X V | V ------V— L K / ~ 1 i 1 .1 i 1951 1952 1953 1954 1955 1956 1957 1958 1959 1960 1961 1962 1963 1964

The plotted lines represent 3-month moving averages of annual rates of Data for the United States are provided by the Board of Governors of the change, weighted 1-2-1, computed from seasonally adjusted data. Federal Reserve System. Bars indicate average rates for periods of no marked and sustained change Data for the four other countries are taken from International Financial in the rate of change (data in Tables I to V ). Statistics, published by the International Monetary Fund. Shaded areas represent periods of business recession.

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Table III Countries, 1 951 -1 964 FRANCE Compounded Annual Rates of Change

Periods of No Marked and Sustained Change in the Rate of Change Annual Rate (Represented by bars on charts) of Change Table I Dec. 1 9 5 0 - Ju n e 1 9 6 4 ...... 1 2 .6 % UNITED STATES Dec. 1950 - Oct. 1951 ...... 18.7 Compounded Annua! Rates of Change Oct. 1951 - ...... 12.8 Periods of No Marked and Sustained July 1956 - Mar. 1960 ...... 7.8 Change in the Rate of Change Annual Rate July 1956 - Feb. 1957 ...... 4.2 {Represented by bars on charts) of Change Feb. 1957 - Oct. 1957 ...... 11.3 Oct. 1957 - Oct. 1958 ...... 3.8 Dec. 1950 - ...... 2 .2 % Oct. 1958 - Mar. 1960 ...... 10.8 Dec. 1950 - Apr. 1953 ...... 4.3 Mar. 1960 - Sept. 1963 ...... 16.7 Apr. 1953 - Apr. 1954 ...... 0.3 Sept. 1963 - June 1964 ...... 8.4 Apr. 1954 - ...... 4.3 May 1955 - Dec. 1956 ...... 1.1 Table IV Dec. 1956 - Jan. 1958 ...... — 0.9 GERMANY Jan. 1958 - ...... 4.1 Compounded Annual Rates of Change Ju re 1959 - ...... — 2.3 June 1960 - June 1964 ...... 2.7 Periods of No Marked and Sustained June 1960 - Jan. 1962 ...... 2.4 Change in the Rate of Change Annual Rate Jan. 1962 - Sept. 1962 ...... 0.3 (Represented by bars on charts) of Change^ Sept. 1962 - June 1964 ...... 3.8 D ec. 1 9 5 0 - Ju n e 1 9 6 4 ...... 1 0 .6 % Dec. 1950 - Apr. 1951 ...... 6.6 Apr. 1951 - Feb. 1952 ...... 22.2 Feb. 1952 - Jan. 1956 ...... 10.5 Jan. 1956 - Feb. 1957 ...... 6.2 Feb. 1957 - Aug. 1959 ...... 14.0 Aug. 1959 - Dec. 1960 ...... 6.6 Aug. 1959 - June 1960 ...... 8.3 T a b le II June 1960 - Dec. 1960 ...... 3.6 Dec. 1960 - June 1964 ...... 9.6 Dec. 1960 - Dec. 1961 ...... 13.6 Compounded Annual Rates of Change Dec. 1961 - Nov. 1962 ...... 8.2 Nov. 1962 - Apr. 1963 ...... 3.4 Periods of No Marked and Sustained Apr. 1963 - June 1964 ...... 9.5 Change in the Rate of Change Annual Rate (Represented by bars on charts) of Change Table V Dec. 1950 - June 1964 ...... 4 .6 % Dec. 1950 - Sept. 1951 ...... — 2.0 UNITED KINGDOM Sept. 1951 - May 1953 ...... 6.1 Compounded Annual Rates of Change

May 1953 - Nov. 1953 ...... — 8.9 Periods of No Marked and Sustained Nov. 1953 - ...... 12.4 Change in the Rate of Change Annua! Rate Nov. 1953 - Oct. 1954 ...... 6.1 {Represented by bars on charts) of Change Oct. 1954 - July 1955 ...... 20.2 March 1951 - June 1964 ...... 2 .5 % July 1955 - Aug. 1957 ...... — 2.7 Ju ly 1955 - Jan. 1956 ...... — 7.7 March 1951 - Jan. 1952 ...... — 2.1 Jan. 1956 - Aug. 1956 ...... 3.2 Jan. 1952 - Feb. 1955 ...... 3.4 Aug. 1956 - Aug. 1957 ...... — 3.7 Feb. 1955 - Apr. 1956 ...... — 3.0 Aug. 1957 - Oct. 1958 ...... 15.3 Aug. 1957 - May 1958 ...... 12.6 Apr. 1956 - June 1959 ...... 2.8 M ay 1958 - Oct. 1958 ...... 18.6 June 1959 - Jan. 1960 ...... 8.6 Oct. 1958 - Nov. 1959 ...... — 4.3 Jan. 1960 - Dec. 1960 ...... 0.8 Nov. 1959 - June 1964 ...... 7.0 Dec. 1960 - ...... 3.1 Nov. 1959 - Nov. 1960 ...... 4.3 Dec. 1960 - ...... 5.9 Nov. 1960 - Nov. 1961 ...... 13.0 June 1961 - Dec. 1961 ...... — 0.3 Nov. 1961 - ...... — 2.0 Dec. 1961 - Nov. 1962 ...... 2.5 July 1962 - ...... 12.3 Nov. 1962 - June 1963 ...... 4.4 May 1963 - Sept. 1963 ...... — 0.7 Sept. 1963 - June 1964 ...... 8.7 June 1963 - June 1964 ...... 6.2

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cator of monetary policy or action or who wish to countries studied here, fluctuations in the rate of study the relation between money supply and other change of the money supply have been both more nu­ economic variables. To the extent that money supply merous and more pronounced. In particular, since behavior relates to levels and changes of prices, in­ mid-1953, there has been a marked absence of rela­ come, and interest rates within a country, foreign tively long periods of stable monetary growth. Over monetary experience may be of considerable impor­ the same period, however, extreme high and low rates tance in affecting international trade and capital flows of monetary change have tended to moderate. and hence have a significant effect on the U. S. balance of payments. Since , the 8.7 per cent rate of mon­ etary growth in Canada has been rather high in com­ The basic data, seasonally adjusted by the IMF, parison with both the 4.6 per cent rate of growth for have been refined and presented in the following the whole period since 1950 and recent experience in manner: the United States and the United Kingdom. 1. Three-month moving averages, weighted 1-2-1, of month-to-month annual rates of change in the F ranee money supply have been computed and plotted. The three-month averages serve to smooth short-term vari­ The French money supply has increased at an aver­ ation in changes in the rate of change of the money age annual rate of 12.6 per cent since 1950, For over supply with an acceptable minimum distortion in the four years, from late 1951 to mid-1956, the rate of timing of changes. monetary growth was about 13 per cent. Then, from July 1956 to , the overall growth rate was 2. Periods of time have been chosen in which no significantly lower, averaging 7.8 per cent. Within marked and sustained change in the rate of change of this period of almost four years, there were two pe­ the money supply for each country occurred. riods when money was increasing at about a 4 per 3. The average annual compounded rate of change cent annual rate and two periods when the rate of in the money supply has been computed on the basis increase was about 11 per cent per annum. The sec­ of the 1-2-1 moving average of the money stock at the ond major period of stable monetary growth, from beginning and end of each period chosen as outlined March 1960 to September 1963, was marked by an in (2). This rate of change then establishes the ver­ exceptionally high annual rate of 17 per cent. tical position of each bar plotted. During the past year, monetary expansion has fallen Questions as to comparability of the basic data for sharply. Although still high by comparison with the each country over the whole period studied, or as United States or the United Kingdom, French mon­ between different countries, might be raised. How­ etary growth since September 1963 has been at an 8.4 ever, in view of the long experience and effort of the per cent annual rate, significantly lower than the aver­ IMF to present reliable figures based on a consistent age for the past 13 years. definition of money,5 it is presumed that the data are sufficiently comparable to merit the use made of them here. Germany The 10.6 per cent annual rate of increase in the Ger­ Canada man money supply since 1950 has been nearly as great as that of France. However, there has been more Since 1950, the Canadian money supply has in­ variation in the rate of growth over this period for creased at an average annual rate of 4.6 per cent. Dur­ Germany than for France. ing this period, there have been wide variations in the rate of monetary expansion. Compared to the other From 1951 to early 1957, monetary expansion was progressively more restrained, falling from 22 per cent 5 “. . . The term Money Supply refers to free currency and free per annum in April 1951-February 1952 to a 6 per cent deposits subject to check owned by the public, i.e., owned by others than banks and the central Government. Deposits in annual rate of increase from to February postal institutions are included if they are subject to check, and deposits held on foreign account are also included/' Inter­ 1957. Since early 1957, changes in the rate of growth national Financial Statistics, Vol. L No, 2, n, vi, 1948. This have become more variable, both as to amount and definition is approximately the same as that used by the Fed­ eral Reserve System. frequency of change.

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The period from February 1957 to was Sum m ary one of greater than average growth. Monetary growth Over the entire period 1951-64, monetary growth was then relatively slow for 16 months up to December has occurred at diverse rates in the five countries 1960. Since , the increase in the money covered in this article. Many factors—e.g., the rate of supply has averaged 9.6 per cent per annum. At no economic growth; structural problems arising from time during the 13/2-year period did the annual rate of wartime dislocations; types of stabilization problems, monetary expansion fall below 6 per cent for any sus­ goals, and available policy instruments; different fi­ tained period. nancial institutions and practices—might be considered to explain these national differences or to appraise United Kingdom the appropriateness of the long-run rates of monetary expansion which did take place. The 2.5 per cent annual rate of growth in the British money supply since 1951 has been comparable with During various shorter periods of time, a wide va­ that in the United States and quite low compared riety of rates of monetary growth can be observed with the other countries covered in this article. From (Table VI). These differing rates of monetary change early 1951 to mid-1959, there were two relatively prolonged periods of stable monetary growth and two Table VI brief periods in which the money supply actually de­ MONEY SUPPLY clined. Over the following five years, from mid-1959 Annual Rate of Change to mid-1964, there were more frequent changes in the Prevailing at rate of change in the money supply. During the period Mid-1954 Mid-1964 as a whole, the annual rate of increase averaged 3.8 Canada ...... 6.1 8.7 per cent. Since June of 1963, the money supply has France ...... 12.8 8.4 grown at about a 6 per cent rate, higher than in any Germany ...... 10.5 9.5 United Kingdom ...... 3.4 6.2 other period of comparable length since 1951. United States ...... 1.8 3.8 largely reflect the fact that cyclical economic develop­ United States ments are not parallel in all countries. Thus, rates of monetary growth prevailing as of June 1954 were quite Since 1951, a recurrent pattern has marked the low in the United States and the United Kingdom course of monetary expansion in the United States. relative to France and Germany. A decade later this Typically, periods of successively lower rates of in­ disparity was much less marked. Compared either crease of money have occurred during periods of with experience ten years earlier or with respective economic expansion. During recessions, the rate of rates of monetary growth over the entire period being monetary growth at some point has risen. Since 1951, considered, monetary expansion as of June 1964 was there have been two periods when the money supply lower in both France and Germany and higher in the decreased—December 1956-January 1958 and June United States and the United Kingdom. Nevertheless, 1959-June 1960. Compared with the four other coun­ the money supply continued to increase much faster in tries considered here, variation in rates of U. S. mon­ the first half of 1964 in France and Germany than in etary change has been much less marked. the United States and the United Kingdom.

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