Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/50322
Authors: 
Graff, Michael
Year of Publication: 
2008
Series/Report no.: 
KOF working papers // Konjunkturforschungsstelle, Eidgenössische Technische Hochschule Zürich 196
Abstract: 
The paper reconstructs the origins of the quantity theory of money and its applications. Against the background of the history of money, it is shown that the theory was flexible enough to adapt to institutional change and thus succeeded in maintaining its relevance. To this day, it is useful as an analytical framework. Although, due to Goodhart's Law, it now has only limited potential to guide monetary policy and was consequently abandoned by most central banks, an empirical analysis drawing on a panel data set covering more than hundred countries from 1991 to the present confirms that the theory still holds: a positive correlation between the excess growth rate of the stock of money and the rate of inflation cannot be rejected. Yet, while the correlation holds for the whole sample, proportionality is driven by a small number of influential observations with very high inflation.
Subjects: 
Quantity theory of money
demand for money
monetary targeting
JEL: 
B10
E41
E58
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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