Does money growth tell us anything about inflation?
The view of one of the authors of this paper about the relationship between money and inflation can be summarised in two anecdotes.
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.
Recommended citation:
Cadamuro, L. and F. Papadia (2021) ‘Does money growth tell us anything about inflation?’, Working Paper 11/2021, Bruegel
Authors
Leonardo Cadamuro
Lecturer in Economics, CUNEF Universidad Madrid
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