Was it right in 2020 to forecast that the then money explosion would increase inflation? An analysis of the US situation

Tim Congdon ()

Chapter 6 in Money and Inflation at the Time of Covid, 2025, pp 168-192 from Edward Elgar Publishing

Abstract: Could forecasts, made in summer 2020, of rising inflation over the next few years be justified by past experience? As noted in previous chapters, broad-money monetarism supported the idea of a link between the growth rates of broad money and nominal national income. The chapter reviews the evidence for a relationship of this kind in the USA in the century before Covid-19. The evidence is that, although the level of velocity is not a stationary (that is, a mean-reverting) series, changes in velocity do have the property of stationarity. This property reflects the underlying stability of agents’ money-holding behaviour. So the sharp fall in velocity seen in 2020 because of the money growth explosion would be reversed in the next few years by a large and offsetting rise in velocity. If money growth remained positive (as seemed likely, given the political context in the USA), a significant rise in inflation was inevitable.

Keywords: Pandemic; Lockdown; OECD area; Great Depression; Transmission mechanism; Great Recession (search for similar items in EconPapers)
Date: 2025
ISBN: 9781035328963
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