Authors: Jan Černohorský
Addresses: Faculty of Economics and Administration, Institute of Economic Sciences, University of Pardubice, Studentská 84, Pardubice, 530 09, Czech Republic
Abstract: The aim of this paper is to assess the relationship between the development of liquid money and selected price indices in the US economy in 1961-2018. The Engle-Granger cointegration test and Granger causality are used to calculate the relationships. Cointegration was not demonstrated in any of the cases. Therefore, this study's contribution lies in confirming the conclusions of mostly newer studies concerning the invalidity of the quantitative theory of money under current conditions. However, short-term Granger-causal relationships were demonstrated in almost all cases. Thus, we can predict consumer prices and the prices for bonds and real estate based on the development of the amount of liquid money. It is also possible to predict the development of the amount of liquid money based on how all these price indicators develop. So central banks can still to some extent affect significant prices in the economy by influencing the money supply.
Keywords: liquid money; CPI; consumer price index; bond prices; stock prices; real estate prices; US economy; Engle-Granger cointegration.
International Journal of Monetary Economics and Finance, 2021 Vol.14 No.1, pp.69 - 90
Received: 05 Nov 2019
Accepted: 02 Apr 2020
Published online: 19 Feb 2021 *