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Missing money found causing Australia's inflation

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  • Makin, Anthony J.
  • Robson, Alex
  • Ratnasiri, Shyama

Abstract

This paper examines the nexus between excess currency growth and inflation in Australia. It first canvasses the operation of monetary policy. Using different econometric techniques, it next examines how well excess money supply growth, measured in terms of currency and M3, explains Australia's inflation over the long term from 1970–2015, and then more specifically before and after the adoption of inflation targeting. Its key result is that excess money growth has been the main determinant of Australia's inflation, although became less important during the inflation targeting era. This implies the velocity of currency, the sine qua non of the Quantity Theory of Money, has been remarkably stable. Given the role excess currency plays in generating Australian inflation, it should be afforded greater prominence in monetary policy deliberations.

Suggested Citation

  • Makin, Anthony J. & Robson, Alex & Ratnasiri, Shyama, 2017. "Missing money found causing Australia's inflation," Economic Modelling, Elsevier, vol. 66(C), pages 156-162.
    • Handle: RePEc:eee:ecmode:v:66:y:2017:i:c:p:156-162
    DOI: 10.1016/j.econmod.2017.06.009
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    Cited by:

    1. ALBULESCU, Claudiu Tiberiu & Pepin, Dominique, 2018. "Monetary Integration, Money-Demand Stability, and the Role of Monetary Overhang in Forecasting Inflation in CEE Countries," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 33(4), pages 841-879.
    2. Cogoljević, Dušan & Gavrilović, Milan & Roganović, Miloš & Matić, Ivana & Piljan, Ivan, 2018. "Analyzing of consumer price index influence on inflation by multiple linear regression," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 505(C), pages 941-944.
    3. Njegovan Nikola & Simin Mirela Tomaš, 2020. "Inflation and Prices of Agricultural Products," Economic Themes, Sciendo, vol. 58(2), pages 203-217, June.
    4. Claudiu Tiberiu Albulescu & Dominique Pépin, 2018. "Money demand stability, monetary overhang and inflation forecast in the CEE countries," Working Papers hal-01720319, HAL.
    5. Cross, Jamie, 2019. "On the reduced macroeconomic volatility of the Australian economy: Good policy or good luck?," Economic Modelling, Elsevier, vol. 77(C), pages 174-186.

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    More about this item

    Keywords

    E31; E52; Australia; Excess currency; Inflation; Velocity;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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