Working Paper

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. We conclude that the low-frequency behavior of these series maintains a close relationship, as predicted by standard quantity theory models. In an estimated model, we show those relationships to be relatively invariant to alternative frictions that can deliver very different high-frequency dynamics. We argue that these relationships are useful for policy design aimed at controlling inflation.

Keywords: Money demand; Monetary aggregates; Monetary policy;

JEL Classification: E41; E51; E52;

https://doi.org/10.21034/wp.774

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Authors

Bibliographic Information

Provider: Federal Reserve Bank of Minneapolis

Part of Series: Working Papers

Publication Date: 2020-12-15

Number: 774