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Inflation and Money Growth - Evidence from a Multi-Country Data-Set

  • John C. Frain

    (Central Bank and Financial Services Regulatory Authority of Ireland and Trinity College Dublin)

Using a multi-country data set strong correlation are found between average growth rates of monetary aggregates and average inflation. The correlation remains strong when countries with higher average inflation rates are removed from the sample. These results confirm the strong correlation found in the traditional literature but contradict those in De Grauwe and Polan (2001) who, in a recent analysis, find that the strong link vanishes when higher inflation countries are excluded. Further analysis confirms the unit response and bears out the value of monetary aggregates as an input to the making of monetary policy.

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File URL: http://www.esr.ie/Vol35%203/Vol%2035_3Frain.pdf
File Function: First version, 2004
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Article provided by Economic and Social Studies in its journal Economic and Social Review.

Volume (Year): 35 (2004)
Issue (Month): 3 ()
Pages: 251-266

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Handle: RePEc:eso:journl:v:35:y:2004:i:3:p:251-266
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  1. Laurence H. Meyer, 2001. "Does money matter?," Review, Federal Reserve Bank of St. Louis, issue May, pages 1-16.
  2. John C. Frain, 2004. "Inflation and Money Growth - Evidence from a Multi-Country Data-Set," The Economic and Social Review, Economic and Social Studies, vol. 35(3), pages 251-266.
  3. James H. Stock & Mark W. Watson, 1991. "A simple estimator of cointegrating vectors in higher order integrated systems," Working Paper Series, Macroeconomic Issues 91-3, Federal Reserve Bank of Chicago.
  4. Nelson, Edward, 2003. "The Future of Monetary Aggregates in Monetary Policy Analysis," CEPR Discussion Papers 3897, C.E.P.R. Discussion Papers.
  5. George T. McCandless, Jr. & Warren E. Weber, 1995. "Some monetary facts," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Sum, pages 2-11.
  6. James A. Dorn, 2003. "Introduction," Cato Journal, Cato Journal, Cato Institute, vol. 23(1), pages 1-9, Spring/Su.
  7. Paul De Grauwe & Magdalena Polan, 2001. "Is Inflation Always and Everywhere a Monetary Phenomenon?," International Economics Working Papers Series wpie009, Katholieke Universiteit Leuven, Centrum voor Economische Studiƫn, International Economics.
  8. De Grauwe, Paul & Polan, Magdalena, 2001. "Is Inflation Always and Everywhere a Monetary Phenomenon?," CEPR Discussion Papers 2841, C.E.P.R. Discussion Papers.
  9. Gerald P. Dwyer, Jr. & R.W. Hafer, 1999. "Are money growth and inflation still related?," Economic Review, Federal Reserve Bank of Atlanta, issue Q2, pages 32-43.
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