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Money growth and inflation: Policy lessons from a comparison of the US since 2008 with hyperinflation Germany in the 1920s

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  • Cukierman, Alex

Abstract

The quantity theory of money implies that sustained inflation requires a sustained increase in the money supply. It does not, however, imply that all increases in the money supply are inflationary. This letter explores and illustrates this issue by comparing the inflationary consequences of the same base expansion in the US following the collapse of Lehman Brothers with Germany’s hyperinflation experience after WWI. A key factor explaining the vastly different inflation experiences between those two episodes is how the monetary expansion translated into demand. The Fed’s base expansion did not translate into demand for goods and services since most of it was absorbed by a huge increase in demand for liquidity by financial institutions. By contrast, the German monetary expansion was immediately translated into demand for goods and services since it was motivated by government’s hunger for seigniorage revenues.

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  • Cukierman, Alex, 2017. "Money growth and inflation: Policy lessons from a comparison of the US since 2008 with hyperinflation Germany in the 1920s," Economics Letters, Elsevier, vol. 154(C), pages 109-112.
    • Handle: RePEc:eee:ecolet:v:154:y:2017:i:c:p:109-112
    DOI: 10.1016/j.econlet.2017.02.036
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    References listed on IDEAS

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    1. Otmar Issing, 2012. "Central Banks - Paradise Lost," IMES Discussion Paper Series 12-E-10, Institute for Monetary and Economic Studies, Bank of Japan.
    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, March.
    3. Issing, Otmar, 2012. "Central banks: Paradise lost," CFS Working Paper Series 2012/06, Center for Financial Studies (CFS).
    4. Eichengreen, Barry, 2012. "Exorbitant Privilege: The Rise and Fall of the Dollar," OUP Catalogue, Oxford University Press, number 9780199642472, Decembrie.
    5. Cukierman, Alex & Melnick, Rafi, 2015. "The Conquest of Israeli Inflation and Current Policy Dilemmas," CEPR Discussion Papers 10955, C.E.P.R. Discussion Papers.
    6. Cukierman, Alex, 1988. "Rapid inflation -- deliberate policy or miscalculation? : Reply to flood," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 29(1), pages 81-84, January.
    7. Cukierman, Alex, 1988. "Rapid inflation -- deliberate policy or miscalculation?," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 29(1), pages 11-75.
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    Citations

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    Cited by:

    1. John Murphy, 2021. "Economics-2020. What Happens When Everything Shuts Down Except the “Money Printing Pressesâ€," Economic Alternatives, University of National and World Economy, Sofia, Bulgaria, issue 1, pages 91-112, March.
    2. Cukierman, Alex, 2020. "COVID-19, Helicopter Money & the Fiscal-Monetary Nexus," CEPR Discussion Papers 14734, C.E.P.R. Discussion Papers.
    3. Andrew Phiri, 2018. "Inflation persistence in BRICS countries: A quantile autoregressive (QAR) approach," Business and Economic Horizons (BEH), Prague Development Center, vol. 14(1), pages 97-104, January.
    4. Cukierman, Alex, 2019. "A retrospective on the subprime crisis and its aftermath ten years after Lehman’s collapse," Economic Systems, Elsevier, vol. 43(3).
    5. Phiri, Andrew, 2017. "Inflation persistence in BRICS countries: A quantile autoregressive (QAR) model," MPRA Paper 79956, University Library of Munich, Germany.
    6. Alex Cukierman, 2021. "COVID-19, Seignorage, Quantitative Easing and the Fiscal-Monetary Nexus," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 63(2), pages 181-199, June.
    7. Cukierman, Alex, 2018. "A retrospective on the subprime crisis and its aftermath ten years after Lehman’s collapse," CEPR Discussion Papers 13373, C.E.P.R. Discussion Papers.
    8. Seghezza, Elena & Morelli, Pierluigi, 2020. "Why the money multiplier has remained persistently so low in the post-crisis United States?," Economic Modelling, Elsevier, vol. 92(C), pages 309-317.

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    More about this item

    Keywords

    Inflation; Money; US deflation; German hyperinflation;
    All these keywords.

    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook

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