Alex Cukierman, 30 March 2016

The quantity theory of money implies that sustained inflation requires a sustained increase in the money supply. It does not, however, imply that the reverse is also true. This column explores and illustrates this issue by comparing inflation in the US following the collapse of Lehman Brothers with Germany’s hyperinflation experience after WWI. A key factor explaining the vastly different inflation experiences is how the monetary expansion translated into demand. The Fed’s base expansion did not translate into demand for goods and services, whereas the German monetary expansion was motivated by the government’s hunger for seigniorage revenues.

Harald Uhlig, Pedro Teles, 18 October 2010

As the limits of fiscal policy become obvious, monetary policy tools look increasingly attractive to policymakers. Discussion Paper 8049 re-examines the evidence for quantity theory and finds that the textbook relationship between average inflation and the growth rate of money is tenuous in many cases. The authors caution policymakers not to over-interpret the conclusion of quantity theory.


CEPR Policy Research