Understanding the Recent Weakness in Broad Money Growth

14 Pages Posted: 27 Mar 2011

See all articles by Jonathan Bridges

Jonathan Bridges

Bank of England

Neil Rossiter

Bank of England - Monetary Analysis

Ryland Thomas

Bank of England - Monetary Analysis

Date Written: March 21, 2011

Abstract

The growth of broad money in the UK economy has slowed dramatically since the start of the recession. In part, that weakness reflects reduced borrowing by households and companies during the recession. But money balances held by asset managers also fell as deposits were used to purchase new equity and long-term debt issued by the banking sector in response to the financial crisis. Offsetting the weakness from these two factors was the programme of asset purchases — so-called ‘quantitative easing’ or QE — conducted by the Bank of England on behalf of the Monetary Policy Committee, which boosted broad money holdings. The evidence from the monetary data suggests that the programme of asset purchases contributed to an increase in asset prices and, ultimately, an increase in nominal demand in the economy, corroborating other evidence from financial market prices.

Suggested Citation

Bridges, Jonathan and Rossiter, Neil and Thomas, Ryland, Understanding the Recent Weakness in Broad Money Growth (March 21, 2011). Bank of England Quarterly Bulletin 2011 Q1, Available at SSRN: https://ssrn.com/abstract=1792443

Jonathan Bridges (Contact Author)

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

Neil Rossiter

Bank of England - Monetary Analysis ( email )

Threadneedle Street
London EC2R 8AH
United Kingdom

Ryland Thomas

Bank of England - Monetary Analysis ( email )

Threadneedle Street
London EC2R 8AH
United Kingdom

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