Does money growth tell us anything about inflation?
Attention should be paid to a possible sequence of negative events: if inflation would start to be volatile and money growth remains high, efforts to control inflation could be undermined.
Economists and central bankers no longer consider monetary aggregates relevant for inflation forecasts. We explain this neglect by advancing and testing the hypothesis that monetary aggregates are only relevant for inflation in unsettled monetary and inflationary conditions. When inflation is basically stable around the central bank target (1.9 percent), as it has been in most of the last two decades, there is no apparent relationship between monetary aggregates and inflation. This is not surprising: there is not much to be explained about a constant.
Cadamuro, L. and F. Papadia (2021) ‘Does money growth tell us anything about inflation?’, Working Paper 11/2021, Bruegel