Two illustrations of the quantity theory of money reloaded

Han Gao, Mariano Kulish and Juan Pablo Nicolini

Journal of International Economics, 2025, vol. 154, issue C

Abstract: We review the relationship between inflation, nominal interest rates, and rates of money growth for a group of OECD countries. Once regime changes are isolated in the data, 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 frictions that can deliver different short-run dynamics. The trend component obtained from statistical filters does reasonably well in capturing these regime changes in estimated models. 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)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:inecon:v:154:y:2025:i:c:s0022199625000145

DOI: 10.1016/j.jinteco.2025.104058

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