Is the Quantity Theory Dead? Lessons from the Pandemic
13 Pages Posted: 20 Jan 2023
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Is the Quantity Theory Dead? Lessons from the Pandemic
Date Written: January 2023
Abstract
Many policymakers and economists are surprised by the recent high and persistent inflation. This naturally raises questions about what caused it and why it was so unexpected. This paper argues that the quantity theory of money provides a useful framework for forecasting inflation. Anyone equipped with the rather crude forecasting model would have predicted the high and persistent inflation in 2021 and 2022. The failure to foresee such an occurrence was due to the lack of money in monetary policy analysis.
Keywords: monetary policy, money, pandemic, quantity theory
JEL Classification: E51, E52, E58
Suggested Citation: Suggested Citation