Will the Pandemic Bulge in Money Cause High Inflation?

Robert Hetzel
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Robert Hetzel: The Johns Hopkins Institute for Applied Economics, Global Health, and the Study of Business Enterprise

No 180, Studies in Applied Economics from The Johns Hopkins Institute for Applied Economics, Global Health, and the Study of Business Enterprise

Abstract: The monetary aggregate M2 increased from $15,473 billion in February 2020 to $19,670 billion in February 2021, or by 27.1%. Real M2 (M2 deflated by the CPI) increased similarly by 25.3% (https://fred.stlouisfed.org/series/M2REAL). This monetary acceleration, unprecedented outside of wartime, is apparent in a longer-run perspective. From the trough of the last business cycle in June 2009 through February 2020, annualized monthly growth rates for M2 averaged 5.9%. Over the interval March 2020 through June 2020, they averaged 65.6%. Although diminished, rapid M2 growth continued, averaging 12.9% from July 2020 through March 2021. Milton Friedman famously said that inflation is always and everywhere a monetary phenomenon. If he is right, should not this bulge in money lead to an undesirably high rate of inflation?

Pages: 18 pages
Date: 2021-05
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:ris:jhisae:0180

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