Two Illustrations of the Quantity Theory of Money Reloaded
Abstract: In this paper, we review the relationship between inflation rates, nominal interest rates, and rates of growth of monetary aggregates for a large group of OECD countries. If persistent changes in the monetary policy regime are accounted for, the behavior of these series maintains the close relationship predicted by standard quantity theory models. With an estimated model, we show those relationships to be relatively invariant to alternative frictions that can deliver quite different high-frequency dynamics. We also show that the low-frequency component of the data derived from statistical filters does reasonably well in capturing these regime changes. We conclude that the quantity theory relationships are alive and well, and thus they are useful for policy design aimed at controlling inflation.
File(s): File format is application/pdf https://www.minneapolisfed.org/research/sr/sr633.pdf
Provider: Federal Reserve Bank of Minneapolis
Part of Series: Staff Report
Publication Date: 2021-12-17