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The quantity theory of money, 1870-2020

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  • Jung, Alexander

Abstract

This study re-assesses the validity of the quantity theory of money (QTM) for the very long sample, 1870 to 2020, for 18 industrial countries using the dataset from Jordà et al. (2017). It considers structural changes in the economic and financial sectors and changes in monetary policy rameworks. Three findings are presented. First, the results from panel cointegration tests show that the long-run relationship between excess money growth and inflation holds if longer runs of data are used. Second, panel regressions confirm the presence of long and variable lags in the monetary policy transmission, as predicted by Milton Friedman. For the full sample, the average speed of adjustment from excess money growth to inflation in industrial countries was about two years amid heterogeneity across time and countries. Third, the results show that over recent decades, structural change - coinciding with the Great Moderation and, in part, reflecting changes in payment technologies - has led to a collapse of QTM. JEL Classification: B16, B23, E40, E50, N1

Suggested Citation

  • Jung, Alexander, 2024. "The quantity theory of money, 1870-2020," Working Paper Series 2940, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:20242940
    Note: 2106626
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    File URL: https://www.ecb.europa.eu//pub/pdf/scpwps/ecb.wp.2940.en.pdf
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    More about this item

    Keywords

    excess money growth; great moderation; panel cointegration tests; payment technologies; structural change;
    All these keywords.

    JEL classification:

    • B16 - Schools of Economic Thought and Methodology - - History of Economic Thought through 1925 - - - Quantitative and Mathematical
    • B23 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Econometrics; Quantitative and Mathematical Studies
    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • N1 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations

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