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Analysis and insight into trends
in money and banking, and their impact
on the world's leading economies

Research Papers

Research Paper 3: Have Central Banks forgotten about money?

by Dr Juan Castañeda and Professor Tim Congdon

The relationship between money growth and the change in nominal national income has been thoroughly studied and confirmed in many countries over numerous long runs. A widely-held view is that "excess" money growth - growth in the quantity of money that is well ahead of contemporaneous growth in real output - leads to inflation.

This paper will argue, from the experience of the Eurozone after the introduction of the single currency in 1999, that maintaining steady growth of a broadly-defined measure of money is crucial to the achievement of stability in demand and output. The ECB did not sustain a consistent strategy towards money growth and banking regulation over its first decade and a half.

(Click on image to download a pdf)

Research Paper 2: The new regulatory wisdom: good of bad?

by Sir Adam Ridley

Output growth in the leading Western economies has been weaker since the Great Recession of 2008 and 2009 than at any time since the 1930s. According to the International Monetary Fund's database, advanced economies' gross domestic product was flat in 2008 and dropped by 3.4 per cent in 2009. Although 2010 enjoyed a rebound with 3.1 per cent growth, the next three years saw output advancing typically by a mere 1 ½ per cent a year. This was well beneath the pre-2008 trend.

In the leading Western nations the official response to the Great Recession has had a number of well-known and familiar common features, although policy has been far from stable or easy to predict. The elements of this response constitute what might be termed the "New Regulatory Wisdom" (NRW). How is to be defined? What has been its impact so far? And what will be its effects if it is maintained into the future?

(Click on image to download a pdf)

Research Paper 1: A critique of two Keynesian Concepts

by Professor Tim Congdon

The purpose of this paper is to discredit Keynesian income-expenditure analysis and the concept of the multiplier embedded within it. These two key concepts of the Keynesian textbook mainstream omit variables critical to the determination of macroeconomic outcomes. The omissions are so serious that the income-expenditure circular flow is incomplete and misleading if it pretends to constitute a policy-making framework.

Critically, when organized in its familiar textbook form, income-expenditure analysis has no room for either the banking system or the quantity of money. But changes in the quantity of money have major impacts on asset portfolios and expenditure decisions. These changes must be integrated in all discussions of the macroeconomic conjuncture, if such discussions are to make any claim to real-world plausibility.

(Click on image to download a pdf)

Presentation at the launch of the Institute of International Monetary Research

by Professor Tim Congdon

The Quantity Theory of Money - which emphasizes an excess of money growth over the growth of output as the dominant cause of rising prices - is one of the most long-standing and well-developed theories in economics. It has an obvious basis in fact, with a clear link in the last 30 years between the rates of increase in money (broadly-defined, to include all or nearly all bank deposits) and in nominal gross domestic product across the G20 leading nations. However, no academic research institute in the UK pays much attention to the Quantity Theory of Money in macroeconomic forecasting or policy advisory work, even though the relationship between money and nominal GDP suggests that stable growth of money ought to be sought, in order to deliver similarly stable growth of nominal GDP.



Banking and finance in the early years of the United States of America were chaotic. Two of the founding fathers - Thomas Jefferson and James Madison - were hostile to banking, since the issue of paper money led to inflation and default. According to Jefferson,

"...banking establishments are more dangerous than standing armies"

The Great Recession of 2008 - 09 renewed concern about the potential role of the banking system in social and financial instability, and argued for more research and analysis about this critical topic.