Does money growth tell us anything about inflation?
The view of one of the authors of this paper about the relationship between money and inflation can be summarised in two anecdotes.
Economists and central bankers no longer consider monetary aggregates relevant for inflation forecasts. We explain this neglect by advancing and testing the hypothesis that monetary aggregates are only relevant for inflation in unsettled monetary and inflationary conditions. When inflation is basically stable around the central bank target (1.9 percent), as it has been in most of the last two decades, there is no apparent relationship between monetary aggregates and inflation. This is not surprising: there is not much to be explained about a constant.
Recommended citation:
Cadamuro, L. and F. Papadia (2021) ‘Does money growth tell us anything about inflation?’, Working Paper 11/2021, Bruegel
About the authors
Related content
Successful central banks can afford to pay scant attention to money
The European Central Bank’s operational framework and what it is missing
This paper attempts to fill in the gaps in the European Central Bank's framework review
The European Central Bank’s timid operational framework update
The European Central Bank announced limited changes to its operational framework – which is probably right given current uncertainty
