Researcher Models US Inflation Trends Based on Money Supply and Economic Growth

Table of Links

• Abstract and 1 Introduction
• 2. Methods
• 2.1 Statistical Methodology
• 2.2 US Time Series Data
• 2.3 Hyperinflation Model
• 3. Results
• 3.1 Characterisation of Price Inflation
• 3.2 Characterisation of Hyperinflation in the Weimar Republic (1922 to 1923)
• 4. Discussion
• 5. Conclusion, Supplementary materials, Acknowledgements, and References
  • Appendix

Abstract

Monetary inflation is a sustained increase in the money supply than can result in price inflation, which is a rise in the general level of prices of goods and services. The objectives of this paper were to develop economic models to (1) predict the annual rate of growth in the US consumer price index (CPI), based on the annual growth in the US broad money supply (BMS), the annual growth in US real GDP, and the annual growth in US savings, over the time period 2001 to 2019; (2) investigate the means by which monetary and price inflation can develop into monetary and price hyperinflation.

The hypothesis that the annual rate of growth in the US CPI is a function of the annual growth in the US BMS minus the annual growth in US real GDP minus the annual growth in US savings, over the time period investigated, has been shown to be the case. However, an exact relationship required the use of a non-zero residual term. A mathematical statistical formulation of a hyperinflationary process has been provided and used to quantify the period of hyperinflation in the Weimar Republic, from July 1922 until the end of November 1923.

1. Introduction

Monetary inflation is a sustained increase in the money supply of a country (or currency area) and it is likely to result in price inflation, which is usually just called "inflation", which is a rise in the general level of prices of goods and services [1]. The consumer price index (CPI) is a common measure of price inflation [2]. While there is general agreement among economists that there is a causal relationship between monetary inflation and price inflation, there is no general agreement on the exact relationship between the two [1]. Hyperinflation is rapidly rising price inflation, typically measuring more than 50% per month [3]. Broad money includes both notes and coins, but also other forms of money, which can easily be converted into cash. It is the most inclusive method of calculating a given country's money supply [4].

The objectives of this paper are to investigate:

(1) the hypothesis that the annual rate of growth in the US consumer price index (CPI) is a function of the annual growth in the US broad money supply (BMS) minus the annual growth in US real GDP minus the annual growth in US savings, over the time period 2001 to 2019, with 2001 as the reference year (time = 0).

(2) the means by which monetary and price inflation can develop into monetary and price hyperinflation.