Re: Stiglitz on Soros--question for Leigh

["Leigh Harkness" <Leigh@xxxxxxxxxxxxxxxxxxxx>]

THIS POST EXPLAINS HOW TO OBTAIN THE DATA
TO COMPARE THE GROWTH OF BANK CREDIT
WITH THE CURRENT ACCOUNT DEFICIT  FOR AUSTRALIA


Bill

You wrote

> Will you not admit that in such an involved analysis it is possible to
> introduce "experimenter's bias?"

The data is freely available on the internet from the Reserve Bank of
Australia website www.rba.gov.au  and go to the statistics section.

I use the residual method.  That is, I take all the growth in currency and
bank
credit for each month and deduct those sources of money that don't
contribute to demand.  This method also eliminated bank credit that may have
been financed from the growth of bank capital (a form of saving) and would
not have added to the growth of the money supply.

I suggest you start from January 1995 as this is a relatively stable period
as far as the statistics are concerned and will serve to illustrate the
point.

Download the following worksheets from the RBA site

B03HIST
D02HIST
D03HIST
E02HIST
H01AHIST
H04HIST

Set up a spreadsheet and in Column A put the date in months from December
1994 or other date you wish to use. It is easy to do this by linking to the
dates in one of the downloaded spreadsheets (other than H01AHIST which has
quarterly data).

In column B link to
     D03HIST          B   currency in circulation not seasonally adjusted
In column C link to
    B03HIST          K  total A$ liabilities of the banking system
In column D link to
   B03HIST          E  other borrowing from banks
In column E link to
   D02HIST          E  bank bills held by banks

Make sure that each link is to the appropriate month and it pays to label
each column.

In column F = Columns(B+C-D-E)  This is the growth in the money supply.

Make column G equal the value in the corresponding line less the value of of
column G in December 1994.  This gives you the growth in the money supply
since December 1994.

Although Australia has a floating exchange rate system, the banking system
continues to build up and run down foreign reserves assets.

That source of money does not cause excess demand.

So to identify the money that was created by the banking system we need to
identify the total amount created from foreign reserve type transactions and
deduct this from the money supply in Column G.

This gives you the money supply. Obtain the growth in this money supply for
the period by deducting the first value from all the other values.

>From these monthly figures you have to deduct the money created by foreign
reserve transactions.

In column H link
  B03HIST       X       Total bank foreign currency assets
In column I link
H04HIST       J     Holdings of official reseve assets - Gold.
In column J link
   H04HIST       E    Total RBA net spot foreign exchange transactions

Column J the RBA net spot foreign exchange transactions is not an aggregate
figures, as the others are.  It is the net purchases or sales for that
month.
To bring it to the same format as the other columns you need to aggregate it
in column K  For example  K6 =  +J6+K5.

Now we can determine the total money from foreign reserve transactions which
we put in column L such that cells in
column  L=  H-I+K

Then in column M we calculate the growth of money from foreign exchange
transactions by taking each cell in column L and deducting the first cell in
column L.   For  example M11 = L11-$L$5  where L5 is the first cell of the
table in column L.

In column N we calculate the total monetary growth from bank credit which is
column G less column M.

We now need to compare that to the current account deficit.

The current account deficit is in H01AHIST column L.  It is quarterly data.
Also it is not aggreaged.

Aggregate the current account data from the March quarter 1995 for all
available data since then.  It is recorded as a negative number so it needs
to be converted to a positive number.

My method for doing that is as follows:
=============================================================
Using Microsoft Excel, I created an index number to convert quarterly data
to monthly data in column P
so that P5= +P4+1/3

Then in column "0" I put the following forumula:

O7 =-INDEX([H01Ahist.xls]H01AHIST.XLS!$L$154:$L$181,P7)/3+O6
=================================================================

It is then possible to compare the contribution of currency and bank credit
to the current account deficit.

Graphing columns N and O should compare the columns adequately.

This will not get a perfect equality.  If you wish to improve your data you
could adjust for the following new banks and other adjustments over that
period.  Details of assets are provided by the RBA.  I have found that on
average, a bank's liablities are about 85% of their assets.

The following is a summary of the changes but it it is not necessary to
adjust for them if all
you are wanting to do is confirm the basic relationship between the bank
credit and the current account deficit.

These adjustments are a matter of fine tuning or what you, Bill,  would wish
could be called experimenter's
bias.

If you have got this far, I should be able to work out how to use this data.

Jan-95     Citibank Savings incorporated into Citibank, Formation of
DaiIchiKangyo Bank Limited            4225
Mar-95            Midland Bank PC         441
Jun-95             Reporting change reduced assets and liabilities of a bank
by $.06 billion -600
Jul-95               Bendigo Bank Limited  1706
Sep-95             Queensland Industry Development Corporation 2946
Apr-96             Aashi Bank       489
Dec-96            Transfer from NBFI's   3200
Feb-97             Royal Bank of Canada  38
Jan-98             Dresdner Bank 1343
Apr-98             NMRothchild &Sons    1399
Aug-98            Toronto Dominion Bank           685
Jun-00             Elders Rural Bank         650

Bill
Lets agree on the facts before we discuss the theory.

If you don't want to do the calculations yourself, you can reqest a copy
from me directly by email (excluding pkt)
and I can send you the spreadsheet with the above exercise.

Regards

Leigh