MONEY SUPPLY GROWTH & INFLATION.   Term Paper ID:20246 Click to get this paper

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Paper Abstract: Examines statistical relationship. Tables & charts. Paper Introduction: The purpose of this research is to examine the relationship between money supply growth and inflation. For purposes of this research, money supply growth is considered in the contexts of both the M1 and the M2 money supplies as measured and reported by the Federal Reserve and in the contexts of both absolute money supply levels and yeartoyear changes in these levels. Inflation is represented in this research by the yeartoyear change in the consumer price index (CPI) for all items. Data for this examination were collected on an annual basis for the 10year period 19821991 for use in plotting graphically and for the 13year period 19791991 for use in correlation analysis. Monetarist economists place great importance on the supply of money as the prime cause of inflation.1 Their contention is that significant and rapid increases in the money supply produce Text of the Paper: The entire text of the paper is shown below. However, the text is somewhat scrambled. We want to give you as much information as we possibly can about our papers and essays, but we cannot give them away for free. In the text below you will find that while disordered, many of the phrases are essentially intact. From this text you will be able to get a solid sense of the writing style, the concepts addressed, and the sources used in the research paper. 3K. 16??? A 1981 study by the Federal Reserve Bank of Richmond founda strong, positive relationship (r = .797) between the M1 Money Supplygrowth and inflation in the United States for the period 1958-1977. For purposes of this research, money supplygrowth was considered in the contexts of both the M1 and the M2 moneysupplies as measured and reported by the Federal Reserve and in thecontexts of both absolute money supply levels and year-to-year changes inthese levels. New York: St. Meltzer. H. Economic Indicators. A comparison of inflation and year-to-yearchanges in M2 Money Supply levels is presented in Chart 4, which may befound on page Table 3 Inflation: Consumer Price Index--All Items Year-to-Year Change: 1982-1991=================================================================Year Year-to-Year Change (%)---- ------------1982 6.21983 3.21984 4.31985 3.61986 1.91987 3.61988 4.11989 4.8199 5.41991 4.2 [Source: Council of Economic Advisers, 1992, p. ###############1983 ????????????????????????########1984 ??????????????????###########1985 ????????????????? Washington, D.C.: U.S. Other economists, however, tend to cite the combined effect of anumber of interrelated factors as the underlying reason for price levelincreases.2 Explanations for inflation can, generally, be placed in one oftwo categories: (1) sociological causes, in which it is asserted thatmovements in prices and wages proceed independently of market conditions;and (2) economic causes, which emphasize the essential interdependencebetween price and wage movements and evolving market conditions.3 Someresearchers assert that the---------- 1Andrew Schotter. Asthe data presented in Chart 1 indicate, the level of the M1 Money Supplyand the rate of Table 1 M1 Money Supply and Year-to-Year Change 1982-1991=================================================================Year M1 Money Supply Year-to-Year ($ = billions) Change (%)---- --------------- ------------1982 474.6 8.71983 521.4 9.91984 552.5 6. ##########1989 ??? 455. Monetarist economists contend that inflation is a product of moneysupply growth. 4??? ##############199 ??????????????????????????????????????? A comparison of inflation and M1 MoneySupply levels is presented in Chart 1, which may be found on page 6. ############# [Source: Tables 2 and 3]=================================================================Supply level for the period 1979-1991 was found to be r = .5167. 7??? #####1987 ?????????? None of the four graphic comparisons provided any indication of astrong relationship between the rate of inflation and either money supplylevels or the growth in money supply levels. Martin's Press, 1985.Selden, R. [Source: Council of Economic Advisers, 1992, p. This correlation coefficient indicates a positive but veryweak relationship between the two variables.The purpose of this research was to examine the relationship between moneysupply growth and inflation. #####1987 ???????? This correlation coefficient indicates a positive butonly moderately strong relationship between the two variables.The correlation between the rate of inflation and year-to-year Chart 2 Inflation and M1 Money Supply Year-to-Year Change 1982-1991=================================================================Money Supply (% change) ? In 1981, the Federal Reserve Bank of Richmond conducted a studyin which the relationship between monetary growth and inflation wasexamined in 14 European and North American countries. Asthe data presented in Chart 4 indicate, inflation and year-to-year changesin the M2 Money Supply do not appear to be highly connected. 13??? Data for thisexamination were collected on an annual basis for the 1 year period 1982-1991. 656. ###############1983 ???????????????????? for the period 1982-1991 are presented inTable 1 below. A comparison of inflation and year-to-year changes in M1 Money Supplylevels is presented in Chart 2, which may be found Table 2 M2 Money Supply and Year-to-Year Change 1982-1991=================================================================Year M2 Money Supply Year-to-Year ($ = billions) Change (%)---- --------------- ------------1982 1951.9 8.91983 2186.1 12. Brunner, and A. ############199 ???????? #################1983 ?????????????????????? 26]=================================================================on page 7. Chart 1 Inflation and M1 Money Supply 1982-1991=================================================================Money Supply ($ = billions) ?? 23]================================================================= 9. For purposes of this research, moneysupply growth is considered in the contexts of both the M1 and the M2 moneysupplies as measured and reported by the Federal Reserve and in thecontexts of both absolute money supply levels and year-to-year changes inthese levels. 16??? #############1991 ???????????????????########### [Source: Tables 1 and 3]================================================================= changesin the M1 Money Supply level for the period 1979-1991 was found to be r =. ##########1984 ?????????????????????????#############1985 ????????????????????????????###########1986 ????????????????????????????????#######1987 ?????????????????????????????????###########1988 ??????????????????????????????????? As the data presented in Chart 3indicate, the level of the M2 Money Supply and the rate of inflation do notappear to be highly connected. Thus, for whateverreasons the total monetary reserves increase, increases in these reservesshould, according to these analysts, be accompanied by increased rates ofinflation. In this study, the correlation betweenmoney supply (M-1) and inflation (CPI) ranged from a low of r = .311 forFrance to a high of r = .797 for the United States.7 The M1 Money Supply and year-to-year changes in that measure---------- 4Ibid.5Ibid.6"The Monetarist Scramble to Explain Low Inflation," Business Week, 13August 1984, 134-137.7R. A comparison of inflation and M2 Money Supply levels is presented inChart 3, which may be found on page 8. Thefindings of this research found a positive, but only moderately strong,relationship between inflation and the M1 Money Supply (r = .4621), andbetween inflation and the M2 Money Supply (r = .5167). "The Explanation of Inflation." American Economic Review, 57 (February 1977): 148-154.Council of Economic Advisers. T. #########1988 ????????????? Martin'sPress, 1985), 11 -115. The Crisis in Economic Theory. #########1988 ???????????? #############1991 ??????? The correlationbetween the rate of inflation and year-to-year Chart 4 Inflation and M2 Money Supply Year-to-Year Change 1982-1991=================================================================Money Supply (% change) # 1??? Inflation was represented in this research by the year-to-year change in the consumer price index (CPI) for all items. ############# [Source: Tables 1 and 3]================================================================= The correlation between the rate of inflation and the M1 Money Supplylevel for the period 1979-1991 was found to be r =4621. These data sets were expanded to include the 13-year period 1979-1991. ############1989 ?????????????????????????????????????? The M2 Money Supply and year-to-year changes in thatmeasure are presented in Table 2 on page 4. ########### [Source: Tables 1 and 3]=================================================================changes in the M2 Money Supply level for the period 1979-1991 was found tobe r = . Free Market Economics. 1??? 1984 2374.3 8.61985 2569.4 8.21986 2811.1 9.41987 291 .8 3.51988 3 71.1 5.51989 3227.3 5.1199 3339. Data for thisexamination were collected on an annual basis for the 1 -year period 1982-1991 for use in plotting graphically and for the 13-year period 1979-1991for use in correlation analysis. Thiscorrelation coefficient indicates a positive but onlymoderately strong relationship between the two variables. ###############1991 ????????????????????????????????????????? The purpose of this research is to examine the relationship betweenmoney supply growth and inflation. New York: Basic Books, 1981.Brunner, K., and A. 6 ??9 ??12 ??15 ??18 ?? For a more clear-cutassessment of the relationships, Pearson product-moment correlationanalysis was applied to the relevant sets ofdata. 4??? Inflation is represented in this research by the year-to-year change in the consumer price index (CPI) for all items. Free Market Economics (New York: St. ##########1989 ???????????? 1 ??? 1991 898.1 8.7 [Source: Council of Economic Advisers, 1992, p. 1 ??? 3 ?? The study was basedon data for the 1958-1977 period. T. 26]=================================================================inflation do not appear to be highly connected. ############199 ?????????? #########1986 ???????????????????? 13??? ###########1985 ?????????????????????????#########1986 ??????????????????????????????????? BibliographyBell, Daniel, and Irving Kristol. Inflation (% change) ### 1### 4### 7###1 ### 13### 16### 19-----------------------------------------------------------------1982 ??????? 19Inflation(% change) # 1### 4### 7### 1 ### 13### 16### 19-----------------------------------------------------------------1982 ?????????????????? ##########1984 ????????? ###############1991 ?????????????????? 3.51991 3439.8 3. Inthe mid-198 s, however, monetarist economists found it difficult to explainthe twin events of lowering inflation and a rising money supply in theUnited States.6 Monetarist economists contend that inflation is, in greatpart, the result of increases in the money supply. "Inflation and Monetary Growth." Economic Review, 58 (November/December 1981): 19-31. ########1984 ???????????? Monetarist economists place great importance on the supply of moneyas the prime cause of inflation.1 Their contention is that significant andrapid increases in the money supply produce significant increases inprices. 1985 62 .2 12.31986 724.6 16.81987 75 .2 3.51988 786.9 4.91989 794.1 .9199 826.1 4. Government Printing Office, December 1992."The Monetarist Scramble to Explain Low Inflation." Business Week, 13 August 1984, 134-137.Schotter, Andrew. #################1983 ??????? 2Daniel Bell, and Irving Kristol, The Crisis in Economic Theory (NewYork: Basic, 1981), 5, 22, 27, 33, 121, 155, 164. 19Inflation(% change) # 1### 4### 7### 1 ### 13### 16### 19-----------------------------------------------------------------1982 ?????????????????? #############1985 ????????????? A likelyexplanation for the difference between the findings of this research andthose of the earlier study is that factors other than money supply growthaffect the rate of inflation and those other factors were different in the1979-1991 period than they were in the earlier, 1958-1977, period. As the data presented in Chart 2 indicate, inflation and year-to-yearchanges in the M1 Money Supply do not appear to be highly connected. 7??? H. Selden, "Inflation and Monetary Growth," Economic Review, 58(November/December 1981): 23. actual cause of inflation is probably a combination of thetwo types of factors.4 That sociological causes embodied in governmentalpolicies interact with the market mechanisms to create inflation.5Nevertheless, the creation of new money on a massive scale, at least inmonetarist economic circles, is directly linked to rising inflation. Meltzer, "Explanation of Inflation," AmericanEconomic Review, 57 (February 1977): 148-154. Inflation, as measured by year-to-year changes in the CPI for the period 1982-1991, is presented in Table3, which may be found on page 5. ###########1986 ??????????????#######1987 ???????????????###########1988 ????????????????############1989 ?????????????????##############199 ????????????????? This correlation coefficient indicates apositive but very weak relationship between the two variables.The correlation between the rate of inflation and the M2 Money Chart 3 Inflation and M2 Money Supply 1982-1991=================================================================Money Supply ($ = billions) ??5 ??1 ??15 ??2 ??25 ??3 ??35 Inflation (% change) ### 1###4### 7### 1 ### 13### 16### 19-----------------------------------------------------------------1982 ??????????????????? If this paper is not what you are looking for, you can search again: Search for: or Click here to request an essay written just for you.

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