Money and Inflation: Is Monetary Policy Useful?

21 Pages Posted: 17 Jun 2015

See all articles by Atanas Christev

Atanas Christev

Heriot-Watt University; IZA Institute of Labor Economics

Yue Kang

Heriot-Watt University; University of Stirling

Date Written: September 2015

Abstract

In this paper, we establish a connection between money growth and inflation identified under different monetary policy regimes using UK data. We study the (in)stability of this quantity theoretic relationship, and interpret it through the lens of a New Keynesian model of monetary policy with alternative policy rules. We document the implied instability of low‐frequency correlations between money growth and inflation emerging as a result of differences in monetary policies epitomizing the UK experience since the 1970s. In general, we show that monetary policy regime shifts contribute to the breakdown of the quantity theoretic propositions. Our findings seem to lend support to related work for the US over the last century.

Suggested Citation

Christev, Atanas and Kang, Yue, Money and Inflation: Is Monetary Policy Useful? (September 2015). The Manchester School, Vol. 83, pp. 30-50, 2015. Available at SSRN: https://ssrn.com/abstract=2619450 or http://dx.doi.org/10.1111/manc.12103

Atanas Christev (Contact Author)

Heriot-Watt University ( email )

Riccarton
Edinburgh EH14 4AS, Scotland EH14 1AS
United Kingdom

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Yue Kang

Heriot-Watt University ( email )

Riccarton
Edinburgh, EH14 1AS
United Kingdom

University of Stirling ( email )

Stirling, Scotland FK9 4LA
United Kingdom

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