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Money supplyGross output | Productivity Norm Inflation | NGDP | Private Investment | Natural Rate

A note on casual empiricism

Macroeconomics has see a thrust towards technique, with formal methods being the norm and a strong focus on precision. When Captain James Cook pioneered meteorological observation that mapped wind and ocean currents, it allowed boats to precisely ascertain the optimal sailing time. However there was a reason why rules of thumb prevailed for so long. They are appropriate under the following conditions:

  • Original situations
  • Conditions of uncertainty
  • Lack of data

Boats need GPS and macroeconomics needs DSGE models. But there's still a place for rules of thumb.

Money supply (MA)


We suspect that there is a useful middle ground between narrow and broad measures of the money supply, and attempt to define and identify an Austrian version called 'MA'. It can be viewed as a hybrid of M1 and MZM for the current UK economy. Our special report (released in June 2011) explains in more detail the composition, but note than in January 2012 we made some important updates (see here for an overview). Also, in January 2014 the Bank of England made a reclassification that accounts for the sudden decline (see here for details).

You can download a detailed paper about the compilation of Ma here.

See this important update for MA excluding MFI deposits.

We will endeavour to backdate MA and provide more details on the changes but encourage comments and feedback in the meantime.

Bank of England:


Gross output

By only focusing on final goods and services GDP has two major limitations: (i) it underestimates the amount of economic activity in the economy (by ignoring parts of the structure of production); (ii) it overestimates the role of consumption as a driver of recovery. Using Input-Output tables to find intermediate consumption, we can reveal the annual growth rate of "Gross Output" (defined as NGDP + intermediate consumption).

Also see:

Productivity norm inflation

This chart shows the relationship between CPI and CPI that is adjusted to take into a productivity norm (PN). It is based on George Selgin's work, and shows the inflation rate if underlying productivity changes were permitted to manifest themselves. The compilation method is explained in these posts:



  • Dowd, Kevin (1995) "Deflating the productivity norm" Journal of Macroeconomics, 17(3):717-732
  • Selgin, George A., (1995) "The case for a 'productvity norm': Comment on Dowd" Journal of Macroeconomics, 17(4):733-740

On inflation expectations




For our guide to using the National Accounts see here. For a discussion on the use of this measure for prediction markets see here.

In my policy paper I advocated a 2% NGDP target. The chart below shows actual NGDP relative to this benchmark, as well as a 4% growth rate.

Here is the NGDP growth rate:


Private Investment


The data used comes from "Gross Fixed Capital Formation" of the National Accounts (Table F). We define "private investment" as the sum of business investment and private sector investment. One way to calculate is to follow this link and use Table G1. It is important to copy the data into a new Excel spreadsheet and then paste the values and skipping the spaces. I then copy and paste into Google Drive. 

For more details:

Natural interest rate

Now moved to here: https://www.kaleidic.org/natural-rate/


    • MA data is available on the 1st day of each month
    • Gross Output is available on an annual basis (usually July)
    • Shadow prices is compose of CPI data, which is released in the middle of each month, but also productivity data which is only released quarterly (latest release: 24th December 2014)
    • NGDP data is available with the Second Estimate and Final Estimate of the National Accounts (i.e. on or around the 24th-26th of each May & June, August & September, November & December, and February & March)
    • Private Investment is available with each release of the National Accounts (the First Estimate is released on or around the 24th-26th of each April, July, October, and January but is updated in the Second and Final Estimates)

    Google Drive codes:

    • MA KA01
    • Gross output KA04
    • Productivity norm inflation KA03
    • NGDP KA11 (and NGDP target KA12)
    • Private investment KA08
    • Natural rate KA06

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