Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/212435 
Year of Publication: 
2019
Series/Report no.: 
Bank of Finland Research Discussion Papers No. 1/2019
Publisher: 
Bank of Finland, Helsinki
Abstract: 
How long is the long run in the relationship between money growth and inflation? How important are high inflation episodes for the unit slope finding in the quantity theory of money? To answer these questions we study the relationship between excess money growth and inflation over time and across frequencies using annual data from 1871 to 2013 for several developed countries. Wavelet-based exploratory analysis shows the existence of a close stable relationship between excess money growth and inflation only over longer time horizons, i.e. periods greater than 16 and 24 years, with money growth mostly leading. When we investigate the sensitivity of the unit slope finding to inflation episodes using a scale-based panel data approach we find that low-frequency regression coefficients estimated over variable-length subsamples before and after WWII are largely affected by high inflation episodes. Taken together the results that inflationary upsurges affect regression coefficients but not the closeness of the long-run relationship call for a qualification of the Quantity Theory of Money and suggests that policymakers should not lose interest on monetary developments.
JEL: 
C22
E40
E50
N10
Persistent Identifier of the first edition: 
ISBN: 
978-952-323-257-0
Document Type: 
Working Paper

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.