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Time Aggregation and the Relationship between Inflation and Money Growth

Janice Boucher Breuer, John McDermott and Warren E. Weber
Authors registered in the RePEc Author Service: Janice Breuer Bass ()

Journal of Money, Credit and Banking, 2018, vol. 50, issue 2-3, 351-375

Abstract: Using panel data for 99 countries, we confirm that the measured elasticity of prices with respect to money is higher, and closer to unity, the higher is money growth and the longer the time horizon over which the data are averaged. We propose two explanations. In one, the true model of inflation involves a lagged response to money growth. In the other, there is negative correlation between shocks to inflation and money growth. Our empirical results can be explained if high–money‐growth countries have (i) shorter lags or (ii) less negative correlation, when compared to countries with low money growth.

Date: 2018
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Journal of Money, Credit and Banking is currently edited by Robert deYoung, Paul Evans, Pok-Sang Lam and Kenneth D. West

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