Monetary Analysis: a Vector Autoregressive (VAR) Perspective

The ultimately monetary nature of inflation, that is the fact that prolonged periods of high inflation are associated with high monetary growth, is essentially undisputed in academic and central banking circles. While other factors (such as variations in aggregate demand or technological changes) can influence price developments at shorter horizons, this does not negate the underlying long-term relationship between prices and the money stock. As a consequence, this key relationship has also …