Is Inflation Always and Everywhere a Monetary Phenomenon?

Paul De Grauwe and Magdalena Polan

No 2841, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Using a sample of about 160 countries over the last thirty years we test for the quantity theory relationship between money and inflation. When analysing the full sample of countries we find a strong positive relation between the long-run inflation and money growth rate. The relation is not, however, proportional. The strong link between inflation and money growth is almost wholly due to the presence of high (or hyper-) inflation countries in the sample. The relationship between inflation and money growth for low inflation countries (on average less than 10% per annum over the last 30 years) is weak. We find that the long-run average inflation and country-specific factors have a significant influence on the strength of the relationship. We also confirm that money growth and output growth are orthogonal in the long-run; i.e. higher growth rates of money do not lead to higher growth rates of output.

Keywords: Quantity theory of money; inflation; Money (search for similar items in EconPapers)
JEL-codes: E40 E50 (search for similar items in EconPapers)
Date: 2001-06
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Citations: View citations in EconPapers (45)

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