By Luca Benati of the Bank’s Monetary Assessment and Strategy Division.
We investigate the correlation between inflation and the rates of growth of narrow and broad money in the United Kingdom since the 19th century. Empirical evidence points towards a remarkable stability across monetary regimes in the correlation for longer-run trends in the data, but some instability in the short to medium term. Additional evidence from the United States confirms the overall stability of the correlation for the longer-run trends.
Long-run evidence on money growth and inflation