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Are monetarists right about the inflation conundrum?

An old fashioned theory is coming back to the fore, as central banks struggle to contain rising prices
July 27, 2023
  • New research suggests that the link between money growth and inflation holds when inflation is high 
  • Do rate-setters need to consider more monetarist views?

Is monetarism making a comeback?

In simple terms, monetarism is the idea that “inflation is always and everywhere a monetary phenomenon”, or that there is a stable relationship between the supply of money and the inflation rate. The theory was espoused by economist Milton Friedman in the 1970s, but later fell from prominence as a predictable relationship between inflation and money supply seemed to disappear. 

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