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... consequence of changes in economic activity, it is of course difficult to use changes in money supply to "explain" changes in economic activity.

M3 is most tightly connected with very large transactions, and therefore driven more by activity in capital markets than by changes in income flows.

A loss of correlation between changes in M3 and changes in GDP therefore seems to imply that there has been a loss of correlation between activity in capital markets and income transactions.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Sun Oct 7th, 2007 at 10:40:22 AM EST

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