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The Long-Run Link between Money Growth and Inflation

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  • Crowder, William J

Abstract

Is inflation always a monetary phenomenon? Many economists believe that the link between money growth and inflation in the United States has weakened over the last two decades due in part to the Federal Reserve's policy experiment in 1979-82 and innovations in the financial sector of the economy. The author finds that the long-run relationship between money growth and inflation is strong in a statistical sense and important economically. The key result is that the trend or growth component in CPI inflation is entirely due to the trend component of monetary base growth. Copyright 1998 by Oxford University Press.

Suggested Citation

  • Crowder, William J, 1998. "The Long-Run Link between Money Growth and Inflation," Economic Inquiry, Western Economic Association International, vol. 36(2), pages 229-243, April.
  • Handle: RePEc:oup:ecinqu:v:36:y:1998:i:2:p:229-43
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    Citations

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    Cited by:

    1. Crowder, William J. & Wohar, Mark E., 1999. "The changing long-run linkage between yields on Treasury and municipal bonds and the 1986 Tax Act," Review of Financial Economics, Elsevier, vol. 8(2), pages 101-119.
    2. Max Gillman & Anton Nakov, 2004. "Granger causality of the inflation-growth mirror in accession countries," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 12(4), pages 653-681, December.
    3. Max Gillman & Mark N. Harris, 2004. "Inflation, Financial Development and Endogenous Growth," Monash Econometrics and Business Statistics Working Papers 24/04, Monash University, Department of Econometrics and Business Statistics.
    4. Jiang, Chun & Chang, Tsangyao & Li, Xiao-Lin, 2015. "Money growth and inflation in China: New evidence from a wavelet analysis," International Review of Economics & Finance, Elsevier, vol. 35(C), pages 249-261.
    5. Joakim Westerlund & Mauro Costantini, 2009. "Panel cointegration and the neutrality of money," Empirical Economics, Springer, vol. 36(1), pages 1-26, February.
    6. Michael Graff, 2008. "The Quantity Theory of Money in Historical Perspective," KOF Working papers 08-196, KOF Swiss Economic Institute, ETH Zurich.
    7. Max Gillman & Mark N. Harris, 2010. "The effect of inflation on growth," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 18(4), pages 697-714, October.
    8. Martin Schmidt, 2003. "Monetary dynamics: a market approach," Applied Economics, Taylor & Francis Journals, vol. 35(2), pages 139-152.
    9. Kulaksizoglu, Tamer & Kulaksizoglu, Sebnem, 2009. "The U.S. Excess Money Growth and Inflation Relation in the Long-Run: A Nonlinear Analysis," MPRA Paper 23780, University Library of Munich, Germany.
    10. Gillman, Max & Harris, Mark N., 2008. "The Effect of Inflation on Growth: Evidence from a Panel of Transition Countries," Cardiff Economics Working Papers E2008/25, Cardiff University, Cardiff Business School, Economics Section.
    11. Martin B. Schmidt, 2004. "Exogeneity within the M2 Demand Function: Evidence from a Large Macroeconomic System," Economic Inquiry, Western Economic Association International, vol. 42(4), pages 634-646, October.
    12. Benk, Szilárd & Gillman, Max & Kejak, Michal, 2008. "US Volatility Cycles of Output and Inflation, 1919-2004: A Money and Banking Approach to a Puzzle," Cardiff Economics Working Papers E2008/28, Cardiff University, Cardiff Business School, Economics Section.
    13. Sharon Kozicki, 2001. "Why do central banks monitor so many inflation indicators?," Economic Review, Federal Reserve Bank of Kansas City, issue Q III, pages 5-42.
    14. Martin Schmidt, 2007. "The long and short of money: short-run dynamics within a structural model," Applied Economics, Taylor & Francis Journals, vol. 40(2), pages 175-192.
    15. Schmidt, Martin B., 2001. "The long and short of money and prices: a market equilibrium approach," Journal of Economics and Business, Elsevier, vol. 53(6), pages 563-583.
    16. Martin Schmidt, 2003. "Money and prices: evidence from the G7 countries," Applied Economics, Taylor & Francis Journals, vol. 35(17), pages 1799-1809.
    17. López-Villavicencio, Antonia & Mignon, Valérie, 2011. "On the impact of inflation on output growth: Does the level of inflation matter?," Journal of Macroeconomics, Elsevier, vol. 33(3), pages 455-464, September.
    18. Martin Schmidt, 2003. "Savings and investment in Australia," Applied Economics, Taylor & Francis Journals, vol. 35(1), pages 99-106.
    19. Fortun Vargas, Jonathan, 2012. "Monetary dynamics in post inflation Bolivia," Revista Latinoamericana de Desarrollo Economico, Instituto de Investigaciones Socio-Económicas (IISEC), Universidad Católica Boliviana, issue 18, pages 65-104, Noviembre.
    20. Perera, Anil & Ralston, Deborah & Wickramanayake, Jayasinghe, 2013. "Central bank financial strength and inflation: Is there a robust link?," Journal of Financial Stability, Elsevier, vol. 9(3), pages 399-414.

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