{"title":"The simple macroeconometrics of the quantity theory and the welfare cost of inflation","authors":"Kenneth G. Stewart","doi":"10.1016/j.jedc.2024.104842","DOIUrl":null,"url":null,"abstract":"<div><p>The quantity theory of money hypothesizes that the price level is determined through the equilibration of money supply and demand. Predicated on this causal structure, a single-equation error correction model decomposes from a larger vector autoregressive system so as to make available bounds tests for a levels relationship that are robust to the univariate integration properties of the variables. This model is estimated using three monetary aggregates and two money demand specifications, for U.S. and U.K. annual data over the past century and quarterly post-WWII data. The classic homogeneity propositions of the quantity theory are testable, and are found to be most compatible with U.S. annual M2 using log-log money demand with structural change permitted. Nevertheless, the resulting welfare costs are similar to those yielded by the U.K. annual data, being less than one percent of GDP at interest rates experienced during the past century.</p></div>","PeriodicalId":48314,"journal":{"name":"Journal of Economic Dynamics & Control","volume":null,"pages":null},"PeriodicalIF":1.9000,"publicationDate":"2024-03-04","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://www.sciencedirect.com/science/article/pii/S0165188924000344/pdfft?md5=596ba81e8cafe6fd6a460fe69ea3ed0d&pid=1-s2.0-S0165188924000344-main.pdf","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Journal of Economic Dynamics & Control","FirstCategoryId":"96","ListUrlMain":"https://www.sciencedirect.com/science/article/pii/S0165188924000344","RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q2","JCRName":"ECONOMICS","Score":null,"Total":0}
引用次数: 0
Abstract
The quantity theory of money hypothesizes that the price level is determined through the equilibration of money supply and demand. Predicated on this causal structure, a single-equation error correction model decomposes from a larger vector autoregressive system so as to make available bounds tests for a levels relationship that are robust to the univariate integration properties of the variables. This model is estimated using three monetary aggregates and two money demand specifications, for U.S. and U.K. annual data over the past century and quarterly post-WWII data. The classic homogeneity propositions of the quantity theory are testable, and are found to be most compatible with U.S. annual M2 using log-log money demand with structural change permitted. Nevertheless, the resulting welfare costs are similar to those yielded by the U.K. annual data, being less than one percent of GDP at interest rates experienced during the past century.
期刊介绍:
The journal provides an outlet for publication of research concerning all theoretical and empirical aspects of economic dynamics and control as well as the development and use of computational methods in economics and finance. Contributions regarding computational methods may include, but are not restricted to, artificial intelligence, databases, decision support systems, genetic algorithms, modelling languages, neural networks, numerical algorithms for optimization, control and equilibria, parallel computing and qualitative reasoning.