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Time Aggregation and the Relationship between Inflation and Money Growth

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  • JANICE BOUCHER BREUER
  • JOHN MCDERMOTT
  • WARREN E. WEBER

Abstract

Using panel data for 99 countries, we confirm that the measured elasticity of prices with respect to money is higher, and closer to unity, the higher is money growth and the longer the time horizon over which the data are averaged. We propose two explanations. In one, the true model of inflation involves a lagged response to money growth. In the other, there is negative correlation between shocks to inflation and money growth. Our empirical results can be explained if high–money‐growth countries have (i) shorter lags or (ii) less negative correlation, when compared to countries with low money growth.

Suggested Citation

  • Janice Boucher Breuer & John Mcdermott & Warren E. Weber, 2018. "Time Aggregation and the Relationship between Inflation and Money Growth," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 50(2-3), pages 351-375, March.
    • Handle: RePEc:wly:jmoncb:v:50:y:2018:i:2-3:p:351-375
    DOI: 10.1111/jmcb.12463
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    References listed on IDEAS

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    Cited by:

    1. Maciej Ryczkowski, 2021. "Money and inflation in inflation-targeting regimes – new evidence from time–frequency analysis," Journal of Applied Economics, Taylor & Francis Journals, vol. 24(1), pages 17-44, January.

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