Monetary aggregates and inflation: a new view on an old relationship

Gianni Amisano and Roberta Colavecchio

Chapter 9 in Research Handbook on Inflation, 2025, pp 186-205 from Edward Elgar Publishing

Abstract: This chapter explores the evolving relationship between money growth and inflation, particularly in the context of recent economic shocks. Historically, the quantity theory of money established a strong long-term correlation between money growth and inflation, validated by empirical evidence. However, this link has shown signs of instability, complicating its use in monetary policy. The shift from monetary targeting to inflation-focused regimes, especially post-1980s, minimized the role of monetary aggregates in policy frameworks. The inflation surge post-2019, driven by unprecedented global shocks like the COVID-19 pandemic and geopolitical conflicts, has reignited the debate on this relationship. This chapter reviews theoretical and empirical literature, provides a historical overview, and presents new empirical evidence on the role of monetary aggregates in signaling inflation risks, emphasizing recent developments.

Keywords: Money growth; Quantity theory of money; Monetary policy; Inflation targeting; Monetary aggregates (search for similar items in EconPapers)
Date: 2025
ISBN: 9781035327751
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