Dinero e Inflación: ¿En Qué Estamos?

This paper analyzes the rapid growth of money (M1A) in the Chilean economy that has coincided with low inflation and a loosened monetary policy. This has been advocated to assert that such monetary growth is inconsistent with the inflation target. This work is intended to prove such an argument wrong. First, we present episodes occurred in other lower-inflation countries, where monetary aggregates have grown even faster than in Chile, without resulting in higher inflation. Second, we show that money trends are consistent with money demand estimates, although these are very volatile. Finally, we explain why in the context of a monetary policy based on inflation targeting, where the policy instrument is the interest rate, it is possible for money to fluctuate widely without jeopardizing the inflation target. Even if inflation is associated to an excessive increase in the amount of money, and monetary policy is neutral over the long term, monetary aggregates provide little information on inflationary pressures.