Both of these examples result in an increased in measured deposits at banks, but neither presages more nominal spending. 9  G Ryle “The Concept of Mind” London (1949) Hutchinson. Ryle was criticising as incoherent a dualist view of mind and body in which the mind is instrumental in determining action but is wholly distinct from the physical realm. BIS Review 73/2007  5  We need to start as the Governor has said by trying to distinguish supply shocks from demand shocks. 10 Where growth in money is driven by the wish of consumers or companies to increase their holdings of money for a given level of spending, there need be no effect on nominal GDP or inflation. As I have discussed there is clear evidence of changes in demand of that sort in the financial sector. But that is not the whole story. So have there been increases in supply of money and if so how will they feed through into the economy? What does a supply shock look like? It is easiest to visualise in a closed economy in which the money supply is mainly notes issued by the monetary authorities. One can imagine then a direct increase in supply – a helicopter drop of extra notes. In that world people would really find themselves with extra cash in their pockets and would be expected to go out and spend some or all of it.
But we must obviously not turn a blind eye to the possibility that new disturbances may expose other weaknesses. Household behaviour in the housing market poses a considerable challenge to economic policy, particularly because demand for housing and residential mortgages is heavily subsidised via the tax system and because the very low level of equity capital required to extend a mortgage is reflected in the supply of loans. These challenges must be confronted at the source. Thank you for your attention. 8  BIS Review 119/2009  BIS Review 119/2009  9  10  BIS Review 119/2009  BIS Review 119/2009  11  12  BIS Review 119/2009  BIS Review 119/2009  13  14  BIS Review 119/2009  BIS Review 119/2009  15  16  BIS Review 119/2009  BIS Review 119/2009  17  18  BIS Review 119/2009