Abstract
The paper investigates the oral model specified by the British liquidity school, which asserts that there exists a causal and positive relationship between movements in credit (and their controls) and movements in prices. Importantly, the Bank of England has conducted monetary policy consistent with the pronouncements of the liquidity school. Consequently, in order to restrain in rising prices, the Bank of England tightens credit via the use of selective controls on bank lending, calls for special deposits, and hire purchase agreements.
When the hypothesis is tested, it is found that credit controls exert little significant effect on prices. The poor performance of the model indicates that the role of credit controls in the determination of retail prices should be deemphasized.
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