Saturday, October 12, 2013

The population, the monetary base: Is there a connection?

Ostensibly there should be an overall correlation with a larger population meaning a larger monetary base, but in the process of constructing this post, I noticed an interesting correlation in the fluctuations around that overall relationship:


Is the distance from the origin in (log MB, log NGDP) space directly related to the population size?


The effect of cohort size on income is called the Easterlin effect in sociology, see e.g. this review. The effect here is different since it looks at contemporaneous population size. The economy is farther out along the R = (log NGDP, log MB) axes than it "should" be in the 80s and 90s, and this is corresponding with a lower population. I wouldn't put very much money down on this being more than a coincidence, but I thought I'd jot it down.

2 comments:

  1. One possible explanation: When the population is lower than trend, the monetary base is higher relative to the population size which increases the information transfer capacity per capita (if you are not in an information trap) leading to a boost in the economy.

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  2. By "this post" above I meant this one:

    http://informationtransfereconomics.blogspot.com/2013/10/the-1970s.html

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