Journal Article

Monetary aggregates and the rate of inflation

Abstract: Some economists advocate focusing less emphasis on monetary aggregates because the relationship of monetary aggregates to the ultimate goals of monetary policy is less reliable now than in the past. But the stability of the relationship between money growth and inflation is a testable hypothesis. Joseph Haslag investigates whether money growth is currently as useful a predictor of inflation as it previously has been. He tests three different measures of money growth: the monetary base, M1 and M2. Haslag finds that the relationship remains stable over time. ; Haslag also finds that both the monetary base and M2 are useful in predicting the behavior of the inflation rate. Information that is unique to M1, however, makes a statistically insignificant contribution to predicting inflation.

Keywords: Monetary policy; Money supply; Inflation (Finance);

Bibliographic Information

Provider: Federal Reserve Bank of Dallas

Part of Series: Economic and Financial Policy Review

Publication Date: 1990

Issue: Mar

Pages: 1-12