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Inflation and the growth rate of money in the long run and the short run

Díaz-Giménez, Javier and Robert Kirkby ()
Authors registered in the RePEc Author Service: Javier Díaz-Giménez ()

No 5047, Working Paper Series from Victoria University of Wellington, School of Economics and Finance

Abstract: Between 1960 and 2013, in the United States the inflation rate was essentially proportional to the growth rate of money in the long run, but that relationship did not hold in the short run. We ask whether three standard monetary model economies from the Cash-in-Advance, the New-Keynesian, and the Search-Money frameworks replicate these two facts. We find that all three deliver the first fact, but that they fail to deliver the second fact, since in all three of them the inflation rate is proportional to the growth rate of money both in the long run and in the short run. This is because in all three model economies the price level responds too quickly to changes in the growth rate of money.

Keywords: Monetary Economics; Quantity Theory of Money; Cash-in-Advance; New-Keynesian; Search-Money (search for similar items in EconPapers)
Date: 2016
New Economics Papers: this item is included in nep-cba, nep-dge, nep-gro, nep-his and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:vuw:vuwecf:5047

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