Some Alternative Monetary Facts

IMF Working Papers, January 8, 2021

Source details

Authors: Peter Stella, Manmohan Singh
Date: January 8, 2021
Purpose: Discuss the modern history of monetarism and its alternatives, and examine the changing empirical relationship of various measures of money and inflation.

Previous naïve correlations between money and inflation as established in the 20th century literature have largely disappeared.
The disappearance of those correlations cannot be taken as support for an increased reliance on permanent monetary finance.
Rapid technological innovation in payments systems—both public and private—including in global pledged collateral markets, portends a declining demand for central bank liabilities.

Policymakers should not interpret the weakening empirical link between monetary aggregates and inflation as a justification for permanent monetary finance.
Monetary and fiscal authorities need to account for the effects of payments-technology innovation and evolving collateral markets on money demand and central bank balance sheets.
Attention to the changing demand for central bank liabilities is warranted when designing monetary frameworks and operational tools.

Subject: Currencies, Demand for money, Inflation, Monetary aggregates, Monetary base
Keywords: balance sheet expansion, bank reserves, central bank balance sheet, financial market, interest rate, monetary financing, money aggregates, money demand, WP