| The idea that financial structure and output determination may be interrelated has gone through several cycles over the past half a century since its inception at the time of the Great Depression. In its latest reincarnation in the theory of Financial Acceleration, it considers financial factors as propagation mechanisms for the disturbances originating from the real economy, where agency costs of credit allocation by the financial intermediaries play a central role.;Financial factors have rarely been studied as potential sources of variation in the economy. Our study, however, investigates the origination of disturbances from money and bank credit and allows for the propagation of disturbances within a relatively simple macro-dynamic system that utilizes the new approach of Structural Vector Autoregression.;Our findings for the Canadian as well as British economies indicate that money, but not credit, accounts for a sizable variation in output and other macroeconomic variables over various time horizons. However, bank credit serves as a propagation channel through which money disturbances are exacerbated. The results call for greater attention to monetary, in particular money demand, disturbances by the authorities. |
