Economics at your fingertips  

Monetarist arithmetic at COVID‐19 time: A take on how not to misapply the quantity theory of money

Julien Pinter

Economic Notes, 2022, vol. 51, issue 2

Abstract: The COVID‐19 crisis has revived an old heated debate on whether significant increases in the money supply ultimately lead to higher inflation. Some observers have alluded to the quantity theory of money for that purpose, though in our view, this has sometimes been in a misleading way. Against this background, this paper seeks to clarify several aspects of the quantity theory of money, which are useful to apply it fairly in the current world. First, we review the meaning of the velocity term in the quantity equation. We argue that it has no relevance as a behavioural concept: there is no such thing as a 'desired velocity'. Rather, income velocity should be seen as a variable deriving from a system of parameters and variables related to money demand, as the monetarist approach clearly puts it, with no intrinsic relevance. Second, we clarify the practical relevance that the quantity theory approach can bear in the 21st century. Third, we review the channels and assumptions underlying the asserted quantity theory link between money growth and inflation. In light of our analysis, we conclude that the high money growth rates seen since the pandemic outbreak are unlikely to translate into higher inflation rates.

Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)

Related works:
Working Paper: Monetarist arithmetic at COVID-19 time: a take on how not to misapply the quantity theory of money (2021) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=0391-5026

Access Statistics for this article

More articles in Economic Notes from Banca Monte dei Paschi di Siena SpA
Bibliographic data for series maintained by Wiley Content Delivery ().

Page updated 2022-12-02
Handle: RePEc:bla:ecnote:v:51:y:2022:i:2:n:e12200