Inflation, Output, and Money
1982; University of Chicago Press; Volume: 55; Issue: 2 Linguagem: Inglês
10.1086/296161
ISSN1537-5374
Autores Tópico(s)Economic theories and models
ResumoThis paper uses money-demand theory and a rational-expectations version of the quantity theory of money to study inflation in the United States during the post-Korean War period. The major results are as follows. 1. The theory and tests explain the phenomenon of stagflation, that is, the negative relation between inflation and real activity observed during the post-1953 period. The analysis calls into question the many variants of the Phillips curve which presume that inflation-real activity relations are positive. 2. Consistent with the models of Patinkin (1961) and Fama (1980), monthly, quarterly, and annual data indicate that the base (currency plus reserves held against deposits) is the relevant monetary variable in the inflation process and that demand deposits are irrelevant. The direct policy implication is that the base is the key monetary variable in the control of inflation. 3. The most convincing evidence for the simple quantity-theory view of inflation proposed here comes from the comparison of the conditional exMoney-demand theory and the quantity theory of money are used to study the inflation process. As predicted by the model, monthly, quarterly, and annual data indicate that inflation is positively related to money growth rates and negatively related to growth rates of real activity. The theoretical and empirical origins of stagflation are explained, and changes in monetary arrangements to simplify the control of inflation are prescribed.
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