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- Title
THE INFLUENCE OF THE UNITED KINGDOM'S PUBLIC SECTOR DEFICIT ON ITS MONEY STOCK, 1963-76.
- Authors
Akhtar, M. A.; Wilford, D. Sykes
- Abstract
This article attempts to assess the influence of Great Britain's fiscal deficit on its money stock using quarterly observations for the period 1963-76. The public sector deficit is widely recognized to exercise important influence on the stock of money, either directly or indirectly. The extent of this influence depends on the method of financing the deficit. Specifically, if the deficit is financed by domestic or external non-monetary borrowing the money stock will remain essentially unaffected, but if it is financed through the banking system, ceteris paribus, the money stock will increase. In a framework where monetary policy decisions are made independently of fiscal policy decisions, the monetary authorities, through the relevant credit policy decisions, determine the level of government debt purchases by the non-bank private sector, while the fiscal authorities are left to finance the residual. For example, the Federal Reserve System can adjust its portfolio so as to offset bank purchases of government bonds. By contrast, if monetary policy is passive with respect to fiscal policy, credit policy decisions and the level of government debt purchases are directly linked to the deficit since the full amount of it must he financed by the monetary authorities.
- Publication
Bulletin of Economic Research, 1979, Vol 31, Issue 1, p3
- ISSN
0307-3378
- Publication type
Academic Journal
- DOI
10.1111/j.1467-8586.1979.tb00134.x