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DangerMouse

A Question About M3, M4 And M4l

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I have been reading up on what is called "Broad Money" but am still a little confused. Any help from the experienced and knowledgable on this forum would be much appreciated.

As far as I can tell, broad money in the US and Europe is measured by M3. In the UK, this our equivalent measure is M4 (but not necessarily the same?).

I think I see the link between expansion of broad money and inflation, but have the following queries/thoughts (sorry if this has been covered many times on this forum - if so could you point me at a previous post where this is covered)

1) Is there a key difference between US M3 and our M4

I had seen a link where a US economist from the 70's said growth of Repo Rates and EuroDollars were the key inflation component of M3 that they watched for. Is there an equivalent of these included in M4?

2) Is M4 alone a measure of money growth, or is it the difference between M4 Lending and M4 (M4L - M4)?

3) I read that a good rule of thumb is

(Growth in M3 - Growth in GDP) = inflation

I can only seem to find good historical stats from the US rather than Britain, but I still can't see a good pattern emerge from the high inflation 70's. Can anyone help out? Two more thoughts occurred to me from this one

(i) Does inflation lag the growth of M3 by a year or 2?

(ii) Is this really a true equation? If Money Supply grows, then could an increase in GDP just be a reflection that x billions of pounds is now worth slightly less and so the increase in GDP could be made up in large part of inflation,rather than producing more goods and wealth?

It seems like I should be able to find this information for myself but having pored over the internet for a couple of days I don't feel I'm any further forward.

Many thanks,

DM

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  • 301 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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