On the Quantity Theory of Money
Authors: Steve H. Hanke, Zixiang Ma, and Ruiyuan Cheng
Series: Studies in Applied Economics, No. 224
Publisher: The Johns Hopkins Institute for Applied Economics, Global Health, and the Study of Business Enterprise, Baltimore
Date: December 2022
A restatement and empirical defense of the quantity theory of money, written as the 2021-22 inflation demonstrated the cost of the profession's neglect of the monetary aggregates. Hanke, Ma, and Cheng lay out the theory's logic and history, from Hume and Fisher through Friedman and Schwartz, and then assemble the monetary facts: across countries and across long horizons, the growth rate of broad money net of the growth in real output and money demand tracks the rate of inflation, with the familiar lags of roughly one to two years. The authors show that the relationship holds most strongly over the medium and long run and over large monetary disturbances, which is precisely the setting central banks found themselves in after 2020, and they argue that any central bank serious about price stability must monitor and target broad money growth rather than dismissing it as obsolete.
Full Citation:
Hanke, Steve H., Zixiang Ma, and Ruiyuan Cheng. "On the Quantity Theory of Money: Some Monetary Facts." Studies in Applied Economics, No. 224. Baltimore: The Johns Hopkins Institute for Applied Economics, Global Health, and the Study of Business Enterprise, December 2022.
Co-authors: Zixiang Ma and Ruiyuan Cheng