Two Illustrations of the Quantity Theory of Money Reloaded

Han Gao (), Mariano Kulish and Juan Pablo Nicolini

No 633, Staff Report from Federal Reserve Bank of Minneapolis

Abstract: In this paper, we review the relationship between inflation rates, nominal interest rates, and rates of growth of monetary aggregates for a large group of OECD countries. If persistent changes in the monetary policy regime are accounted for, the behavior of these series maintains the close relationship predicted by standard quantity theory models. With an estimated model, we show those relationships to be relatively invariant to alternative frictions that can deliver quite different high-frequency dynamics. We also show that the low-frequency component of the data derived from statistical filters does reasonably well in capturing these regime changes. We conclude that the quantity theory relationships are alive and well, and thus they are useful for policy design aimed at controlling inflation.

Keywords: Money demand; Monetary aggregates; Monetary policy (search for similar items in EconPapers)
JEL-codes: E41 E51 E52 (search for similar items in EconPapers)
Pages: 50
Date: 2021-12-17
New Economics Papers: this item is included in nep-his, nep-mac and nep-mon
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Related works:
Working Paper: Two Illustrations of the Quantity Theory of Money Reloaded (2022)
Working Paper: Two Illustrations of the Quantity Theory of Money Reloaded (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedmsr:93495

DOI: 10.21034/sr.633

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