Is Quantity Theory Still Alive?
This paper investigates whether the quantity theory of money is still alive. We demonstrate three insights. First, for countries with low inflation, the raw relationship between average inflation and the growth rate of money is tenuous at best. Second, the fit markedly improves, when correcting for variation in output growth and the opportunity cost of money, using elasticities implied by theories of Baumol-Tobin and Miller-Orr. Finally, the sample after 1990 shows considerably less inflation variability, worsening the fit of a one-for-one relationship between money growth and inflation, and generates a fairly low elasticity of money demand.
|Date of creation:||Sep 2010|
|Date of revision:|
|Note:||EFG IFM ME|
|Contact details of provider:|| Postal: |
Web page: http://www.nber.org
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.:
- Goohoon Kwon & Lavern McFarlane & Wayne Robinson, 2009. "Public Debt, Money Supply, and Inflation: A Cross-Country Study," IMF Staff Papers, Palgrave Macmillan, vol. 56(3), pages 476-515, August.
- Assenmacher-Wesche, Katrin & Gerlach, Stefan, 2006.
"Money at Low Frequencies,"
CEPR Discussion Papers
5868, C.E.P.R. Discussion Papers.
- Ball, Laurence, 2001.
"Another look at long-run money demand,"
Journal of Monetary Economics,
Elsevier, vol. 47(1), pages 31-44, February.
- Goohoon Kwon & Lavern McFarlane & Wayne Robinson, 2006. "Public Debt, Money Supply, and Inflation: A Cross-Country Study and Its Application to Jamaica," IMF Working Papers 06/121, International Monetary Fund.
- G. Coenen & J.-L. Vega, 2001.
"The demand for M3 in the euro area,"
Journal of Applied Econometrics,
John Wiley & Sons, Ltd., vol. 16(6), pages 727-748.
- Gunter Coenen & Juan Luis Vega, 2000. "The Demand for M3 in the Euro Area," Econometric Society World Congress 2000 Contributed Papers 0976, Econometric Society.
- Coenen, Günter & Vega, Juan Luis, 1999. "The demand for M3 in the euro area," Working Paper Series 0006, European Central Bank.
- Orazio P. Attanasio & Luigi Guiso & Tullio Jappelli, 2002.
"The Demand for Money, Financial Innovation, and the Welfare Cost of Inflation: An Analysis with Household Data,"
Journal of Political Economy,
University of Chicago Press, vol. 110(2), pages 317-351, April.
- Orazio Attanasio & Luigi Guiso & Tullio Jappelli, 1998. "The Demand for Money, Financial Innovation, and the Welfare Cost of Inflation: An Analysis with Households' Data," CSEF Working Papers 03, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
- Orazio Attanasio & Luigi Guiso & Tuillo Jappelli, 1998. "The Demand for Money, Financial Innovation, and the Welfare Cost of Inflation: An Analysis with Household Data," NBER Working Papers 6593, National Bureau of Economic Research, Inc.
- Attanasio, Orazio & Guiso, Luigi & Jappelli, Tullio, 1998. "The Demand for Money, Financial Innovation and the Welfare Cost of Inflation: An Analysis with Households' Data," CEPR Discussion Papers 1927, C.E.P.R. Discussion Papers.
- Carlson, John B. & Hoffman, Dennis L. & Keen, Benjamin D. & Rasche, Robert H., 2000.
"Results of a study of the stability of cointegrating relations comprised of broad monetary aggregates,"
Journal of Monetary Economics,
Elsevier, vol. 46(2), pages 345-383, October.
- John B. Carlson & Dennis L. Hoffman & Benjamin D. Keen & Robert H. Rasche, 1999. "Results of a study of the stability of cointegrating relations comprised of broad monetary aggregates," Working Paper 9917, Federal Reserve Bank of Cleveland.
- Isabel Correia & Pedro Teles, 1997.
"The optimal inflation tax,"
Discussion Paper / Institute for Empirical Macroeconomics
123, Federal Reserve Bank of Minneapolis.
- Dutta, Jayasri & Kapur, Sandeep, 1998. "Liquidity Preference and Financial Intermediation," Review of Economic Studies, Wiley Blackwell, vol. 65(3), pages 551-72, July.
- Pedro Teles & Ruilin Zhou, 2005. "A stable money demand: Looking for the right monetary aggregate," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q I, pages 50-63.
When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:16393. 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.