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Is Quantity Theory Still Alive?

Listed author(s):
  • Pedro Teles
  • Harald Uhlig

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.

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File URL: http://www.nber.org/papers/w16393.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 16393.

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Date of creation: Sep 2010
Publication status: published as Pedro Teles & Harald Uhlig & João Valle e Azevedo, 2016. "Is Quantity Theory Still Alive?," The Economic Journal, vol 126(591), pages 442-464.
Handle: RePEc:nbr:nberwo:16393
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