Is Quantity Theory Still Alive?
27 Pages Posted: 22 Nov 2010
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Is Quantity Theory Still Alive?
Date Written: October 2010
Abstract
This paper investigates whether the quantity theory of money is still alive. We argue that it is, but that the slippage is not negligible. For countries with low inflation, the relationship between average inflation and the growth rate of money is tenuous at best. A correction for variation in output growth and the opportunity cost of money, using theory implied elasticities, helps explain the slippage. For the period since 1990, inflation targeting at low rates of inflation makes it harder to establish the long run relationship between monetary growth and inflation.
Keywords: Inflation, Money demand, Quantity Theory of Money
JEL Classification: E31, E40, E41, E52
Suggested Citation: Suggested Citation
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