Quantity Theory of Money Around the Globe: Money Growth, Money Velocity and Inflation Subject to Different Monetary Policies
Abstract
Diverse monetary policies taken by leading central banks did have different effects on inflation during and especially after the COVID-19 pandemic. While certain countries such as Switzerland and Japan registered moderate annual inflation rates under 3.5% (as measured by their respective Consumer Price Index), that was not the case for other monetary areas such as the United States, the euro area, or the United Kingdom.
In the last years, theoretical approaches have been used in academia to explain the origins of inflation, including the quantity theory of money, the new Keynesian framework, the modern monetary theory, and the fiscal theory of the price level. Since the leading banks from the aforementioned monetary areas and countries implemented policies with remarkable differences in terms of broad money aggregates correlating with diverse inflation results, the «broad» quantitative theory of money can be a suitable theoretical framework to analyze the effect of broad monetary aggregates on inflation.
A regime-switching model (Markov-switching model) is used to test the impact of the monetary variables (changes in money quantity and money velocity) on inflation for Switzerland, Japan, the United States, the euro area, and the United Kingdom. The fact that different monetary areas are used for the present analysis allows for a multi-region, multi-currency study of relationships between monetary aggregates, money velocity, and inflation.
Download
Related
- Quantity Theory of Money Around the Globe: Money Supply and Inflation — the master's thesis this work develops, Universidad de las Hespérides, 2024
- Inflation Calculator — CPI series by country, the data underlying this kind of comparison