Money in the Covid-related business cycle: an analytical narrative and key evidence

Tim Congdon ()

Chapter 10 in Money and Inflation at the Time of Covid, 2025, pp 240-262 from Edward Elgar Publishing

Abstract: Chapter 6 argued that, because of the underlying stability of agents’ money-holding preferences, 2020's large fall in broad-money velocity in the USA would be followed by an offsetting and similarly large rise in velocity over the next few years. If positive money growth were assumed to continue in these few years (as seemed reasonable), a significant rise in inflation had to be expected. Chapter 10 reviews the behaviour of broad-money velocity in the period from mid-2020 to autumn 2024 in three monetary jurisdictions (with the Eurozone and the UK joining the USA) to see what had happened in practice. In all three of them, by autumn 2024, velocity had indeed risen towards its values before the Covid-19 pandemic, in association with surges in inflation. The data therefore confirmed the accuracy and usefulness of the broad-money monetarist analytical framework.

Keywords: Covid business cycle; Money demand functions; Mortgage-backed securities; Treasuries; Quantitative tightening; QE and QT (search for similar items in EconPapers)
Date: 2025
ISBN: 9781035328963
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