Discussion paper

DP2841 Is Inflation Always and Everywhere a Monetary Phenomenon?

Using a sample of about 160 countries over the last thirty years we test for the quantity theory relationship between money and inflation. When analysing the full sample of countries we find a strong positive relation between the long-run inflation and money growth rate. The relation is not, however, proportional. The strong link between inflation and money growth is almost wholly due to the presence of high (or hyper-) inflation countries in the sample. The relationship between inflation and money growth for low inflation countries (on average less than 10% per annum over the last 30 years) is weak. We find that the long-run average inflation and country-specific factors have a significant influence on the strength of the relationship. We also confirm that money growth and output growth are orthogonal in the long-run; i.e. higher growth rates of money do not lead to higher growth rates of output.


De Grauwe, P and M Polan (2001), ‘DP2841 Is Inflation Always and Everywhere a Monetary Phenomenon?‘, CEPR Discussion Paper No. 2841. CEPR Press, Paris & London. https://cepr.org/publications/dp2841