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Is Inflation Always and Everywhere a Monetary Phenomenon?

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  • Paul De Grauwe

    ()
    (K.U.Leuven, C.E.S., International Economics)

  • Magdalena Polan

    ()
    (K.U.Leuven, C.E.S., International Economics)

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    Abstract

    Using a sample of about 160 countries over the last thirty years we test for the quantity theory relationship between money and inflation. When analysing the full sample of countries we find a strong positive relation between the long-run inflation and money growth rate. The relation is not, however, proportional. The strong link between inflation and money growth is almost wholly due to the presence of high (or hyper-) inflation countries in the sample. The relationship between inflation and money growth for low inflation countries (on average less than 10% per annum over the last 30 years) is weak. We find that the long-run average inflation and country-specific factors have a significant influence on the strength of the relationship. We also confirm the neutrality of the money growth the long-run.

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    File URL: http://www.econ.kuleuven.ac.be/ew/academic/intecon/publications/wpie009.pdf
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    Bibliographic Info

    Paper provided by Katholieke Universiteit Leuven, Centrum voor Economische Studiën, International Economics in its series International Economics Working Papers Series with number wpie009.

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    Length: 43 pages
    Date of creation: Jun 2001
    Date of revision:
    Handle: RePEc:kul:kulwps:wpie009

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    Related research

    Keywords: inflation; money; quantity theory of money;

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    References

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    1. Robert King & Mark W. Watson, 1992. "Testing Long Run Neutrality," NBER Working Papers 4156, National Bureau of Economic Research, Inc.
    2. Milton Friedman & Anna J. Schwartz, 1963. "A Monetary History of the United States, 1867-1960," NBER Books, National Bureau of Economic Research, Inc, number frie63-1, May.
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    Cited by:
    1. Michael Woodford, 2006. "How Important is Money in the Conduct of Monetary Policy?," Working Papers 1104, Queen's University, Department of Economics.
    2. Frain, John C., 2003. "Inflation and Money Growth: Evidence from a Multi-Country Data-Set," Research Technical Papers 7/RT/03, Central Bank of Ireland.
    3. Albert Jaeger, 2003. "The ECB'S Money Pillar," IMF Working Papers 03/82, International Monetary Fund.
    4. Claudio Morana & Fabio Cesare Bagliano, 2007. "Inflation and monetary dynamics in the USA: a quantity-theory approach," Applied Economics, Taylor & Francis Journals, vol. 39(2), pages 229-244.
    5. Carlos J. Rodriguez-Fuentes & Antonio Olivera-Herrera & David Padron-Marrero, 2004. "Monetary policy and inflation persistence in the Eurozone," ERSA conference papers ersa04p218, European Regional Science Association.
    6. Gerlach, Stefan, 2003. "The ECB's Two Pillars," CEPR Discussion Papers 3689, C.E.P.R. Discussion Papers.
    7. Waltraud Schelkle, 2003. "A Mixed Blessing: Monetary Enlargement within the Maastricht Policy Framework," Vierteljahrshefte zur Wirtschaftsforschung / Quarterly Journal of Economic Research, DIW Berlin, German Institute for Economic Research, vol. 72(4), pages 624-635.

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