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Is Inflation only a Monetary Phenomenon?

Shuran Liao


Ever since Milton Friedman famously stated, “inflation is always and everywhere a monetary phenomenon,” there has been a debate over whether that argument is correct. This paper reviews a number of studies from around the world to evaluate the validity of the statement worldwide and under which conditions it is true. It has been observed that whether the real data in the economy conforms to the quantity theory of money (QTM), varies from country to country. In some countries, the economic data is aligned with QTM, but in others, they are not. Due to this, whether inflation is a monetary phenomenon or not has been questioned. My research revealed that whether or not inflation is a monetary phenomenon appears to be country-specific. In addition, the level of inflation might play a role in determining this argument. Money supply and inflation have a significant link in economies with high inflation, which corresponds to QTM. On the other hand, low-inflation countries have a relatively weak and negligible link between money supply and inflation.


Inflation; Monetary Phenomenon; Quantity Theory Of Money; Countries

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DOI: http://dx.doi.org/10.18686/fm.v7i3.4402