Monetary Policy and Inflation: Quantity Theory of Money

The book builds upon a long-accepted tradition of quantity theory of money in explaining long-run inflation levels, demonstrating how and why it can be applied throughout history, including the 2022 spikes in inflation. It argues that the issue of non-operationability of the money supply is a policy problem, not a causality problem, and that there is still room for quantity theory to be true.

Format: Hardback
Length: 62 pages
Publication date: 01 November 2023
Publisher: Taylor & Francis Ltd

The recent resurgence of high inflation has ignited a heated debate regarding the causal influence of monetary policy on significant price hikes, particularly in the context of the quantity theory of money. This comprehensive book expands upon a longstanding tradition of quantity theory in elucidating long-run inflation levels. It delves into the mechanisms and reasons behind the theory's applicability throughout history, including its relevance in addressing the recent inflation spikes witnessed in 2022. Furthermore, the book sheds light on why the quantity theory, despite its inherent limitations, is not a fundamental component of modern monetary policy frameworks.

The book posits that the primary concern regarding the non-operationability of the money supply should be addressed as a policy issue rather than a causality problem. While certain models may function without the presence of money, and while a simple deterministic relationship between the money base and aggregates may not exist, the author demonstrates that there is still ample room for the validity of quantity theory.

Perhaps most importantly, as the book reveals, the apparent lack of a relationship between the inflation index and money supply during periods of single-digit inflation is a statistical artifact stemming from confounding factors. In conclusion, while the quantity theory of money has not been prominently utilized in recent Central bank policy, it continues to hold strong in explaining real-world phenomena, including the current record levels of inflation.

The practical significance of this book lies in its ability to illustrate to researchers and scholars how classical macroeconomic thinking can elucidate key monetary factors that contribute to inflation, while simultaneously demonstrating its compatibility with modern macroeconomics and its status as a contemporary concept. By bridging the gap between classical and modern economic perspectives, this book offers valuable insights into the complex dynamics of monetary policy and inflation, contributing to a more comprehensive understanding of economic phenomena.

Dimension: 216 x 138 (mm)
ISBN-13: 9781032557991