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Reexamining The Quantity Theory Of Money: An Empirical Analysis From The Joint Hypothesis

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  • Cheng-Wen Lee

    (Department of International Business, Chung Yuan Christian University, Taiwan)

  • Andrian Dolfriandra Huruta

    (PhD Program in Business, Chung Yuan Christian University, Taiwan & Faculty of Economics and Business, Satya Wacana Christian University, Indonesia)

Abstract

The joint hypothesis test is a replicable interpretation of the quantity theory of money (QTM) when used as an inflation theory. This study examined the effect of money supply and gross domestic product (GDP) growth on inflation volatility. We used the cross-country data of 40 countries, both in 2002 and 2014, from the World Bank publications. We analyzed the data using both the unrestricted regression model and joint hypothesis testing (the Wald test). The unrestricted regression results pointed inflation volatility in 40 countries was mostly driven by the monetary side, not by the real sector. Meanwhile, the joint hypothesis test demonstrated Strong Wald and Weak Wald test for the QTM prediction were rejected. These findings implied undesirable results from a monetarist perspective. We proposed an alternative method to confirm the joint hypothesis test from the QTM. It would be interesting to see whether our findings hold in other countries.

Suggested Citation

  • Cheng-Wen Lee & Andrian Dolfriandra Huruta, 2021. "Reexamining The Quantity Theory Of Money: An Empirical Analysis From The Joint Hypothesis," Economic Review: Journal of Economics and Business, University of Tuzla, Faculty of Economics, vol. 19(1), pages 3-12, May.
    • Handle: RePEc:tuz:journl:v:19:y:2021:i:1:p:3-12
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    References listed on IDEAS

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    More about this item

    Keywords

    quantity theory of money; joint hypothesis; inflation; money supply; GDP growth;
    All these keywords.

    JEL classification:

    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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