The inflation rate reflects exclusively changes in the quantity of money
the verdict
CONTESTED
contested - evenly split
refutedsupported
the weight of evidence
3 sources for · 3 against
The retrieved economic literature presents conflicting findings: some studies support the view that money supply strictly drives inflation, while empirical analyses from multiple countries demonstrate that non-monetary factors such as exchange rates, infrastructure, and structural crises also play significant causal roles.
cost-push of inputs raw material prices Abstract: This study examines the causal relationship between money supply (M2) and inflation rate in The Gambia, using the Standardized Vector Error Correction Model for the period 1985 and 2018. The independent variable used in this research is inflation rate and the dependent variables are money supply (M2), official exchange rate, and gross domestic product (GDP). The results indicate that inflation in the Gambia is caused by money supply – the only variable that affects the rate of inflation in our model. On the other hand, official exchange rate and gross domestic product were found to have no significant effect on the inflation rate in the Gambia. These findings are consistent with the Quantity Theory of Money, which contends that the general price level of goods and services is proportional to the money supply in an economy. The findings of the paper do however have policy implications, particularly for the Gambia and other developing countries. At the policy level, the Central Bank of the Gambia needs to see to it that the amount of money supply is proportional to the quantity of money demanded, if the persistent increase in the country’s inflation rate is to be adequately addressed.
Macro‐economic consequences of large currency depreciations among the crisis‐hit Asian economies varied from one country to another. Inflation did not soar after the Asian currency crisis of 1997–98 in most crisis‐hit countries except Indonesia where high inflation followed a very large nominal depreciation of the rupiah. The high inflation meant a loss of price competitive advantage, a key for economic recovery from a crisis. This paper examines the pass‐through effects of exchange rate changes on the domestic prices in the East Asian economies using a vector autoregression analysis. The main results are as follows: (i) the degree of exchange rate pass‐through to import prices was quite high in the crisis‐hit economies; (ii) the pass‐through to Consumer Price Index (CPI) was generally low, with a notable exception of Indonesia; and (iii) in Indonesia, both the impulse response of monetary policy variables to exchange rate shocks and that of CPI to monetary policy shocks were positive, large, and statistically significant. Thus, Indonesia's accommodative monetary policy, coupled with the high degree of CPI responsiveness to exchange rate changes was an important factor in the inflation‐depreciation spiral in the wake of the currency crisis.
The UK macroeconomic boom of the early 1970s is an experiment that refutes the notion of cost–push inflation. However, such nonsense endures as the consequence of two factors. The first is the convenient ruse by which the state ducks its responsibility for monetary inflation and points the finger in other directions. The second is a potential to confuse the source of an individual price increase (rising scarcity) and the source of general price increases (excessive money).
Inflation
Inflation means that the general level of prices is going up. More money will be needed to pay for goods (like a loaf of bread) and services (like getting a haircut at the hairdresser's). Economists measure inflation regularly to know an economy's state. Inflation changes the ratio of money towards goods or services; more money is needed to get the same amount of a good or service, or the same amount of money will get a lower amount of a good or service. Economists defined certain customer baskets to be able to measure inflation. There can be positive and negative effects. The opposite of inflation is deflation. Causes of inflation
When the total money in an economy (the money supply) increases too rapidly, the quality of the money (the currency value) often decreases. Economists generally think that the increased money supply (monetary inflation) causes the price of goods/services to increase (price inflation) over a longer period. They disagree on causes over a shorter period.
Inflation is a continuous macroeconomic concern that has dominated thoughts at major economic fora due to its pervasive effect on the economy. The quantity theory of money isolates money supply as the major cause of inflation. The economic reality in Nigeria contravenes the theory. The study examines other determinants of inflation in Nigeria using the autoregressive distributed lag (ARDL) method on quarterly data from January 1999December 2018. Findings show that poor infrastructural development, exchange rate, political instability, corruption, and double taxation significantly stimulate inflation rather than just money supply. The results show a causal relationship between other determining factors and inflation. The ARDL result shows a significant long-short run relationship. The study recommends that non-monetary factors of instigating inflation should be controlled and security expenditure should be review along with-related mechanisms to achieve low inflation at single digits at most and economic growth and development.
Quantity Theory of Money is subject to many critiques. One major critique is that it does not provide causal relation between money and prices. It generates a direct and proportional relationship between money and prices. If we causally link money and prices, then it could be argued that monetary growth is not always inflationary. To test this argument, we have selected quarterly data of the U.S economy over the period of 1991 to 2011. We have divided the time series into -periods i.e., normal times {1991 to 2005} and crisis period {2006 to 2011}. Over these sub-samples, the study applied different econometric techniques like Ordinary Least Square (OLS), Autoregressive Distributive Lag Model (ARDL) and Johansen co-integration as per the requirements. In the normal time period, money growth and CPI inflation were not related, but it was directly related to HPI inflation. However, it was inversely related to both inflations in crisis times. Quantity theory relates money with the general price level of the economy. The joint price index of consumer goods and asset prices is the better proxy of a general price index. Finally, monetary growth is directly related to joint inflation in normal times and inversely related to crisis periods. Hence monetary growth is not always inflationary; it could be deflationary under some specific circumstances. Key Words: Quantity Theory of Money, Inflation, Time Series Data, Co-integration, Price Index.
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This check searched the claim as stated. It did not run a separate search for evidence against it.