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Dinero e Inflación: ¿En Qué Estamos?

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  • Jose De Gregorio

Abstract

This paper analyzes the rapid growth of money (M1A) in the Chilean economy that has coincided with low inflation and a loosened monetary policy. This has been advocated to assert that such monetary growth is inconsistent with the inflation target. This work is intended to prove such an argument wrong. First, we present episodes occurred in other lower-inflation countries, where monetary aggregates have grown even faster than in Chile, without resulting in higher inflation. Second, we show that money trends are consistent with money demand estimates, although these are very volatile. Finally, we explain why in the context of a monetary policy based on inflation targeting, where the policy instrument is the interest rate, it is possible for money to fluctuate widely without jeopardizing the inflation target. Even if inflation is associated to an excessive increase in the amount of money, and monetary policy is neutral over the long term, monetary aggregates provide little information on inflationary pressures.

Suggested Citation

  • Jose De Gregorio, 2003. "Dinero e Inflación: ¿En Qué Estamos?," Working Papers Central Bank of Chile 201, Central Bank of Chile.
  • Handle: RePEc:chb:bcchwp:201
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    File URL: http://si2.bcentral.cl/public/pdf/documentos-trabajo/pdf/dtbc201.pdf
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    References listed on IDEAS

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    1. Paul De Grauwe & Magdalena Polan, 2005. "Is Inflation Always and Everywhere a Monetary Phenomenon?," Scandinavian Journal of Economics, Wiley Blackwell, vol. 107(2), pages 239-259, June.
    2. W A Razzak, 2001. "Money in the era of inflation targeting," Reserve Bank of New Zealand Discussion Paper Series DP2001/02, Reserve Bank of New Zealand.
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    Cited by:

    1. Pablo García & Rodrigo Valdés, 2003. "Dinero y Conducción de la Política Monetaria con Metas de Inflación," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 40(121), pages 698-706.
    2. Jorge Hermann & Rómulo Chumacero, 2005. "No Estaba Muerta, ...: La Teoría Cuantitativa y la Relación entre Dinero e Inflación," Working Papers Central Bank of Chile 324, Central Bank of Chile.
    3. Erika Arraño G., 2006. "Agregados Monetarios: Nuevas Definiciones," Economic Statistics Series 53, Central Bank of Chile.
    4. José De Gregorio, 2003. "Mucho Dinero y Poca Inflación: Chile y la Evidencia Internacional," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 40(121), pages 716-724.
    5. Pablo García, & Rodrigo O. Valdés, 2004. "Monetarism Beyond M1A," Working Papers Central Bank of Chile 262, Central Bank of Chile.
    6. José De Gregorio, 2003. "El Banco Central y La Inflación," Economic Policy Papers Central Bank of Chile 05, Central Bank of Chile.
    7. Hernández Monsalve, Mauricio A. & Posada Posada, Carlos Esteban, 2006. "La demanda por dinero en Colombia: un poco más de evidencia en el período reciente," PERFIL DE COYUNTURA ECONÓMICA, UNIVERSIDAD DE ANTIOQUIA - CIE, July.

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