ECB paper questions quantity theory of money in low-inflation countries
Countries with low or moderate inflation "just [do] not" fit the quantity theory of money, according to a working paper published by the European Central Bank (ECB) earlier this week.
The theory specifies that long run inflation has a "one-for-one" relationship with long-run monetary growth - that is, that both variables will increase by the same amount over a given period of time.
In Is Quantity Theory Still Alive? Pedro Teles and Harald Uhlig say the evidence for this relationship is "tenuous
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