Is Quantity Theory Still Alive?

27 Pages Posted: 22 Nov 2010

See all articles by Pedro Teles

Pedro Teles

Federal Reserve Bank of Chicago; Centre for Economic Policy Research (CEPR)

Harald Uhlig

University of Chicago - Department of Economics

Multiple version iconThere are 4 versions of this paper

Date Written: October 2010

Abstract

This paper investigates whether the quantity theory of money is still alive. We argue that it is, but that the slippage is not negligible. For countries with low inflation, the relationship between average inflation and the growth rate of money is tenuous at best. A correction for variation in output growth and the opportunity cost of money, using theory implied elasticities, helps explain the slippage. For the period since 1990, inflation targeting at low rates of inflation makes it harder to establish the long run relationship between monetary growth and inflation.

Keywords: Inflation, Money demand, Quantity Theory of Money

JEL Classification: E31, E40, E41, E52

Suggested Citation

Teles, Pedro and Uhlig, Harald, Is Quantity Theory Still Alive? (October 2010). CEPR Discussion Paper No. DP8049, Available at SSRN: https://ssrn.com/abstract=1711062

Pedro Teles (Contact Author)

Federal Reserve Bank of Chicago ( email )

230 South LaSalle Street
Chicago, IL 60604
United States
312-322-2947 (Phone)
312-322-2357 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Harald Uhlig

University of Chicago - Department of Economics ( email )

1101 East 58th Street
Chicago, IL 60637
United States

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