The Stability of Keynesian and Monetary Multipliers in the United Kingdom

Abstract

The time series of consumption is explained as a consequence of expenditure. The quantity theory hypothesis relates the level of consumption in money terms to the nominal quantity of money. This is, of course, a variant of the normal quantity theory where the level of money income is determined by the amount of money. By subtracting investment from the dependent variable, one makes the quantity theory formulation directly comparable to its Keynesian rival. Money exerts its influence on consumption directly or via elements of expenditure such as investment. With a different definition of autonomous expenditure, we get rather different results for United Kingdom data. Specifically, the monetary hypothesis is more successful for our early period up to the First World War, while the inter-war years are a strongly Keynesian period. After the Second World War, neither model has very high explanatory power, while for the overall period, there is a slightly better fit with expenditure. Exogeneity of Money