Analysis of the Relationship between Money Growth and Inflation Using Wavelet Coherency

Peter Simon ()
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Peter Simon: Magyar Nemzeti Bank

Financial and Economic Review, 2023, vol. 22, issue 4, 58-81

Abstract: Different theories of money lead to different conclusions about whether there is a stable long-run relationship between money growth and inflation. In this analysis, the author examines the wavelet coherency between the growth in the M2 monetary aggregate and inflation in Hungary. Based on the findings, there is no robust long-run relationship between the two variables. When filtering out movements in the HUF exchange rate, the coherency between money growth and inflation is eliminated even over the period from the mid-2000s to the early 2010s. This also empirically supports the assumption that monetary policy does not affect inflation by shaping the money supply.

Keywords: inflation; money supply; interest rates; wavelet transform (search for similar items in EconPapers)
JEL-codes: C10 E31 E40 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:mnb:finrev:v:22:y:2023:i:4:p:58-81

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