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Is Inflation Always and Everywhere a Monetary Phenomenon?

  • Paul De Grauwe

    ()

    (K.U.Leuven, C.E.S., International Economics)

  • Magdalena Polan

    ()

    (K.U.Leuven, C.E.S., International Economics)

Registered author(s):

    Using a sample of about 160 countries over the last thirty years we test for the quantity theory relationship between money and inflation. When analysing the full sample of countries we find a strong positive relation between the long-run inflation and money growth rate. The relation is not, however, proportional. The strong link between inflation and money growth is almost wholly due to the presence of high (or hyper-) inflation countries in the sample. The relationship between inflation and money growth for low inflation countries (on average less than 10% per annum over the last 30 years) is weak. We find that the long-run average inflation and country-specific factors have a significant influence on the strength of the relationship. We also confirm the neutrality of the money growth the long-run.

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    File URL: http://www.econ.kuleuven.ac.be/ew/academic/intecon/publications/wpie009.pdf
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    Paper provided by Katholieke Universiteit Leuven, Centrum voor Economische Studiën, International Economics in its series International Economics Working Papers Series with number wpie009.

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    Length: 43 pages
    Date of creation: Jun 2001
    Date of revision:
    Handle: RePEc:kul:kulwps:wpie009
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    1. Milton Friedman & Anna J. Schwartz, 1963. "A Monetary History of the United States, 1867-1960," NBER Books, National Bureau of Economic Research, Inc, number frie63-1, December.
    2. Robert G. King & Mark W. Watson, 1997. "Testing long-run neutrality," Economic Quarterly, Federal Reserve Bank of Richmond, issue Sum, pages 69-101.
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