The Quantity Theory of Money in Historical Perspective
The paper reconstructs the origins of the quantity theory of money and its applications. Against the background of the history of money, it is shown that the theory was flexible enough to adapt to institutional change and thus succeeded in maintaining its relevance. To this day, it is useful as an analytical framework. Although, due to Goodhart's Law, it now has only limited potential to guide monetary policy and was consequently abandoned by most central banks, an empirical analysis drawing on a panel data set covering more than hundred countries from 1991 to the present confirms that the theory still holds: a positive correlation between the excess growth rate of the stock of money and the rate of inflation cannot be rejected. Yet, while the correlation holds for the whole sample, proportionality is driven by a small number of influential observations with very high inflation
|Date of creation:||Apr 2008|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: +41 44 632 42 39
Fax: +41 44 632 12 18
Web page: http://www.kof.ethz.ch
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- 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.
- Helge Berger & Jakob de Haan & Jan‐Egbert Sturm, 2011.
"Does money matter in the ECB strategy? New evidence based on ECB communication,"
International Journal of Finance & Economics,
John Wiley & Sons, Ltd., vol. 16(1), pages 16-31, 01.
- Helge Berger & Jan-Egbert Sturm, 2006. "Does Money Matter in the ECB Strategy? New Evidence Based on ECB Communication," CESifo Working Paper Series 1652, CESifo Group Munich.
- Berger, Helge & de Haan, Jakob & Sturm, Jan-Egbert, 2006. "Does money matter in the ECB strategy? New evidence based on ECB communication," Discussion Papers 2006/1, Free University Berlin, School of Business & Economics.
- Helge Berger & Jakob de Haan & Jan-Egbert Sturm, 2006. "Does Money Matter in the ECB Strategy? New Evidence Based on ECB Communication," KOF Working papers 06-125, KOF Swiss Economic Institute, ETH Zurich.
- Sussman, Nathan & Zeira, Joseph, 2002.
"Commodity Money Inflation: Theory and Evidence from France in 1350-1436,"
Working Paper Series
rwp02-008, Harvard University, John F. Kennedy School of Government.
- Sussman, Nathan & Zeira, Joseph, 2003. "Commodity money inflation: theory and evidence from France in 1350-1436," Journal of Monetary Economics, Elsevier, vol. 50(8), pages 1769-1793, November.
- Hallman, Jeffrey J & Porter, Richard D & Small, David H, 1991. "Is the Price Level Tied to the M2 Monetary Aggregate in the Long Run?," American Economic Review, American Economic Association, vol. 81(4), pages 841-58, September.
- Yunus Aksoy & Tomasz Piskorski, 2004.
"U.S. Domestic Money, Inflation and Output,"
- Markus Knell & Helmut Stix, 2003. "How Robustare Money Demand Estimations? A Meta-Analytic Approach," Working Papers 81, Oesterreichische Nationalbank (Austrian Central Bank).
- von Hagen, Jurgen, 1999. "Money growth targeting by the Bundesbank," Journal of Monetary Economics, Elsevier, vol. 43(3), pages 681-701, June.
- Jeroen J. M. Kremers & Timothy D. Lane, 1990. "Economic and Monetary Integration and the Aggregate Demand for Money in the EMS," IMF Staff Papers, Palgrave Macmillan, vol. 37(4), pages 777-805, December.
- Ernst Baltensperger & Thomas Jordan & Marcel Savioz, 2001. "The demand for M3 and inflation forecasts: An empirical analysis for Switzerland," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 137(2), pages 244-272, June.
- Paul Gomme, 1998. "Canada's money targeting experiment," Economic Commentary, Federal Reserve Bank of Cleveland, issue Feb.
- Schwartz, Anna J, 1973.
"Secular Price Change in Historical Perspective,"
Journal of Money, Credit and Banking,
Blackwell Publishing, vol. 5(1), pages 243-69, Part II F.
- Engle, Robert F & Granger, Clive W J, 1987. "Co-integration and Error Correction: Representation, Estimation, and Testing," Econometrica, Econometric Society, vol. 55(2), pages 251-76, March.
- Crowder, William J, 1998. "The Long-Run Link between Money Growth and Inflation," Economic Inquiry, Western Economic Association International, vol. 36(2), pages 229-43, April.
- Mishkin, F.S., 1998.
"International Experiences with Different Monetary Policy Regimes,"
648, Stockholm - International Economic Studies.
- Mishkin, Frederic S., 1998. "International Experiences With Different Monetary Policy Regimes," Seminar Papers 648, Stockholm University, Institute for International Economic Studies.
- Frederic S. Mishkin, 2000. "International Experiences with Different Monetary Policy Regimes," NBER Working Papers 7044, National Bureau of Economic Research, Inc.
- Frederic S. Mishkin, 1999. "International Experiences with Different Monetary Policy Regimes," NBER Working Papers 6965, National Bureau of Economic Research, Inc.
- 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, 06.
- Lance J. Bachmeier & Norman R. Swanson, 2005.
"Predicting Inflation: Does The Quantity Theory Help?,"
Western Economic Association International, vol. 43(3), pages 570-585, July.
- Lance J. Bachmeier & Norman R. Swanson, 2003. "Predicting Inflation: Does The Quantity Theory Help?," Departmental Working Papers 200317, Rutgers University, Department of Economics.
- Warne, Anders & Bruggeman, Annick & Donati, Paola, 2003. "Is the demand for euro area M3 stable?," Working Paper Series 0255, European Central Bank.
- McCallum, Bennett T., 1990.
"Inflation: Theory and evidence,"
Handbook of Monetary Economics,
in: B. M. Friedman & F. H. Hahn (ed.), Handbook of Monetary Economics, edition 1, volume 2, chapter 18, pages 963-1012
- Dalziel, Paul, 2000. " On the Evolution of Money and Its Implications for Price Stability," Journal of Economic Surveys, Wiley Blackwell, vol. 14(4), pages 373-93, September.
- JØrgen Wolters & Helmut LØtkepohl, 1998. "A money demand system for German M3," Empirical Economics, Springer, vol. 23(3), pages 371-386.
- Sean Collins & Clive Thorp & Bruce White, 1999. "Defining money and credit aggregates: theory meets practice," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 62, June.
- Claus Brand & Dieter Gerdesmeier & Barbara Roffia, 2002. "Estimating the trend of M3 income velocity underlying the reference value for monetary growth," Occasional Paper Series 03, European Central Bank.
- Calza, Alessandro & Sousa, João, 2003. "Why has broad money demand been more stable in the euro area than in other economies? A literature review," Working Paper Series 0261, European Central Bank.
- Nicoletti-Altimari, Sergio, 2001. "Does money lead inflation in the euro area?," Working Paper Series 0063, European Central Bank.
- Trecroci, Carmine & Vega, Juan Luis, 2000. "The information content of M3 for future inflation," Working Paper Series 0033, European Central Bank.
When requesting a correction, please mention this item's handle: RePEc:kof:wpskof:08-196. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.