Money growth and inflation: new evidence from a nonlinear and asymmetric analysis

Cooray, Arusha, and Khraief, Naceur (2019) Money growth and inflation: new evidence from a nonlinear and asymmetric analysis. Manchester School, 87 (4). pp. 543-577.

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The relationship between money growth and inflation is a topic of debate among macroeconomists. This paper contributes to the empirical literature on the money-inflation pass-through using a Nonlinear Auto-Regressive Distributed Lag model (NARDL) for three countries (the U.S., U.K. and Japan) over an estimation period spanning 1950Q1 to 2014Q4. This methodology allows for empirical tests of short- and long-run asymmetric responses of inflation to both positive and negative shocks affecting money growth of three monetary aggregates (M1, M2, M0). The results reveal that inflation responds asymmetrically to monetary shocks in the long-run for all three countries. Robustness tests are also undertaken by carrying out the Hatemi-J (Empirical Economics, Vol. 43 (2012), pp. 447–456) causality test and splitting the sample period into two, before and after the financial crisis. The findings indicate the existence of a relation between money growth and inflation in the post-crisis period only in the case of the U.K. When we use different break points, we find that the symmetric relationship more likely occurs in the post-crisis period.

Item ID: 69175
Item Type: Article (Research - C1)
ISSN: 1467-9957
Copyright Information: © 2018 The University of Manchester and John Wiley & Sons Ltd
Date Deposited: 28 Sep 2021 21:57
FoR Codes: 38 ECONOMICS > 3801 Applied economics > 380107 Financial economics @ 100%
SEO Codes: 15 ECONOMIC FRAMEWORK > 1502 Macroeconomics > 150208 Monetary policy @ 100%
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