Title: Money, prices, and output: stylised facts and implications for the quantity theory of money

Authors: Puneet Vatsa; Franklin G. Mixon Jr.

Addresses: Department of Global Value Chains and Trade, Faculty of Agribusiness and Commerce, Lincoln University, Lincoln 7647, Christchurch, New Zealand ' Center for Economic Education, Columbus State University, Columbus, 31907, GA, USA

Abstract: First, we update stylised facts about the associations between money supply, prices, and output for 27 countries for the period 1999-2020 using the Hamilton filter; then, we examine the quantity theory of money apropos the said associations. We find mixed evidence regarding the cyclicality of inflation and money growth. More specifically, we find that inflation is acyclical in India, the UK, and the Euro Area, strongly procyclical in China, weakly procyclical in Canada and the US, and strongly countercyclical in Brazil. Moreover, money supply growth is strongly countercyclical in the US and Canada, strongly procyclical in India, and acyclical in the UK and the Euro Area. There is considerable evidence of negative contemporaneous correlations between money supply growth and inflation. Overall, the results contradict the quantity theory of money and call for a new paradigm for understanding the nexus between prices, output, and the money supply.

Keywords: quantity theory of money; Hamilton filter; inflation; money supply; business cycles.

DOI: 10.1504/IJMEF.2022.128507

International Journal of Monetary Economics and Finance, 2022 Vol.15 No.6, pp.614 - 629

Received: 14 Jan 2022
Accepted: 07 Sep 2022
Published online: 24 Jan 2023 *

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