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Sunday, March 28, 2010

Money Impact On Other Variables

High growth rates in nominal money quantity, if clearly exeeding nominal GDP rates, can exert inflationary pressures.

If economic agents base their expectations about future inflation on the money quantity, one would expect the present inflation rate boosted by money quantity growth. But this is dependent on how present prices are influenced by mere expectations.

In many empirical instances, a certain increase of money quantity have turned out to be conducive to growth in real GDP.

Many short run acceleration or deceleration of the money quantity remain without any noticeable effects on other variables.

Long-term trends

Nominal money quantity has always grown, apart from few pathological events. Real money quantity has grown most of the time.

In hyperinflation episodes, real quantity of money sharply fell and remained at low levels for a long time.

Business cycle behaviour

Nominal money quantity is usually pro-cyclical, sometimes leading real GDP peaks.

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