Money growth and inflation : International historical evidence on high inflation episodes for developed countries

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Title: Money growth and inflation : International historical evidence on high inflation episodes for developed countries
ISBN: 978-952-323-257-0
Author: Gallegati, Marco ; Giri, Federico ; Fratianni, Michele
Organization: Bank of Finland
Series: Bank of Finland Research Discussion Papers
ISSN: 1456-6184
Series year: 2019
Series number: 1/2019
Year of publication: 2019
Publication date: 9.1.2019
Pages: 31
Subject (yso): inflaatio; raha; rahan määrä
JEL: C22; E40; E50; N10
Other keywords: Quantity theory of money; Time-frequency analysis; Low frequency relationships; High inflation episodes
Abstract: How long is the long run in the relationship between money growth and inflation? How important are high inflation episodes for the unit slope finding in the quantity theory of money? To answer these questions we study the relationship between excess money growth and inflation over time and across frequencies using annual data from 1871 to 2013 for several developed countries. Wavelet-based exploratory analysis shows the existence of a close stable relationship between excess money growth and inflation only over longer time horizons, i.e. periods greater than 16 and 24 years, with money growth mostly leading. When we investigate the sensitivity of the unit slope finding to inflation episodes using a scale-based panel data approach we find that low-frequency regression coefficients estimated over variable-length subsamples before and after WWII are largely affected by high inflation episodes. Taken together the results that inflationary upsurges affect regression coefficients but not the closeness of the long-run relationship call for a qualification of the Quantity Theory of Money and suggests that policymakers should not lose interest on monetary developments.
Rights: https://helda.helsinki.fi/bof/copyright


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