Friedman is back in the UK

Escrito el 24 Abril 2007 por Juan Toro en Financial Markets

Some economists are worried in the UK because of the high consumer price index growth, well above 3 %. They are also very unhappy in relation to what they believe to be the main drivers of this inflationary process: high liquidity expressed as a high growth of a monetary aggregate (in this case, M4 which represent a wide measure of money). They are expressing an old view much stressed by Milton Friedman: inflation is mainly a monetary phenomenon and too much money in the economy is generally translated into a high inflation rate.

This view has been expressed by a group of economists among which the most famous is probably Professor Charles Goodhart writting an open letter published in the FT. The letter stresses the dangers of the M4 monetary aggregate growing at an annual rate over 12 %. As worded in the letter:


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