Michael W. McCracken & Lillian Fu
KEY TAKEAWAYS
- A famous quote by Milton Friedman — that “inflation is always and everywhere a monetary phenomenon” — suggests growth in the money supply may be a reliable predictor of inflation.
- An analysis shows that money growth and inflation tend to move together mainly in extreme, high-inflation periods, but otherwise tend to drift apart.
- This is related to the velocity of the money supply, or the rate at which it circulates. At ordinary levels of money growth, changes in velocity growth can offset changes in money supply growth, nullifying the effect of excess money growth on inflation.
- Thus, while money growth seems to be a poor everyday predictor of inflation, it does seem to provide a useful signal when the money growth rate moves far outside its historical range.
Πηγή: Federal Reserve Bank of St. Louis