Money Supply and the Recession Connection in 2019

Presenter Information

Bennett EstesFollow

Academic Level at Time of Presentation

Senior

Major

Finance

List all Project Mentors & Advisor(s)

Dr. Sunayan Acharya; Dr. Eran Guse

Presentation Format

Oral Presentation

Abstract/Description

In 1963 Milton Friedman & Anna Jacobson Schwartz wrote a paper titled A Monetary History Of The United States, 1867-1960. This paper outlined how money supply dictates possible recession indicators. Friedman and Schwartz’s used economic data from 1867 through 1960. They theorized that one could predict an imminent recession based on the peak in a money supply expansion and retraction cycle. Recessions tend to involve a retraction of the money supply. This research will reevaluate the theory of money supply retraction during a recession and prove if Friedman and Schwartz’s theory still holds true in the 21st century. The newer recessionary data from the past 60 years will be inspected with the lens of their 20th century theory. The purpose of this research is to create a framework whereby recessions can be predicted based on this dissection of the data.

This research will look at historical trends during the great depression of the 20th century and the great recession of the 21st century and how these similarities can be isolated and combined. Historical data and past macroeconomic mistakes will create a framework for understanding these macro recessions and how they are interconnected to money supply. This research will also include money velocity data as well as bond interest rate in relation to the money supply problem. Using newer evaluation techniques in excel, these three data sets will be combined to build a recession test to see if a recession can be predicted using these 1960s theories. These three separate data trends have been shown to signal possible future recessions. The three combined will be a strong argument for or against recessionary trends. This project will ultimately show a newer updated version of an old model. This new research will reinforce the ideas of these past great economists.

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Money Supply and the Recession Connection in 2019

In 1963 Milton Friedman & Anna Jacobson Schwartz wrote a paper titled A Monetary History Of The United States, 1867-1960. This paper outlined how money supply dictates possible recession indicators. Friedman and Schwartz’s used economic data from 1867 through 1960. They theorized that one could predict an imminent recession based on the peak in a money supply expansion and retraction cycle. Recessions tend to involve a retraction of the money supply. This research will reevaluate the theory of money supply retraction during a recession and prove if Friedman and Schwartz’s theory still holds true in the 21st century. The newer recessionary data from the past 60 years will be inspected with the lens of their 20th century theory. The purpose of this research is to create a framework whereby recessions can be predicted based on this dissection of the data.

This research will look at historical trends during the great depression of the 20th century and the great recession of the 21st century and how these similarities can be isolated and combined. Historical data and past macroeconomic mistakes will create a framework for understanding these macro recessions and how they are interconnected to money supply. This research will also include money velocity data as well as bond interest rate in relation to the money supply problem. Using newer evaluation techniques in excel, these three data sets will be combined to build a recession test to see if a recession can be predicted using these 1960s theories. These three separate data trends have been shown to signal possible future recessions. The three combined will be a strong argument for or against recessionary trends. This project will ultimately show a newer updated version of an old model. This new research will reinforce the ideas of these past great economists.