Historical United States Money Growth, Inflation, and Inflation Credibility (ICPSR 1198)

Version Date: Jun 23, 1999

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Principal Investigator(s):
William G. Dewald, Federal Reserve Bank of St. Louis

https://doi.org/10.3886/ICPSR01198.v1

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Summary

This research focuses on the longer-term monetary relationships in historical data. Charts describing the 10-year average growth rates in the M2 monetary aggregate, nominal GDP, real GDP, and inflation are used to show that there is a consistent longer-term correlation between M2 growth, nominal GDP growth, and inflation but not between such nominal variables and real GDP growth. The data reveal extremely long cycles in monetary growth and inflation, the most recent of which was the strong upward trend in M2 growth, nominal GDP growth, and inflation during the 1960s and 1970s, and the strong downward trend since then. Data going back to the 19th century show that the most recent inflation/disinflation cycle is a repetition of earlier long monetary growth and inflation cycles in the United States historical record. Also discussed is a measure of bond market inflation credibility, defined as the difference between averages in long-term bond rates and real GDP growth. By this measure, inflation credibility hovered close to zero during the 1950s and early 1960s, but then rose to a peak of about 10 percent in the early 1980s. During the 1990s, the bond market has yet to restore the low inflation credibility that existed before inflation turned up during the 1960s. The conclusion is that the risks of starting another costly inflation/disinflation cycle could be avoided by monitoring monetary growth and maintaining a sufficiently tight policy to keep inflation low. An environment of credible price stability would allow the economy to function unfettered by inflationary distortions, which is all that can reasonably be expected of monetary policy, and is precisely what should be expected.

Citation

Dewald, William G. Historical United States Money Growth, Inflation, and Inflation Credibility. Inter-university Consortium for Political and Social Research [distributor], 1999-06-23. https://doi.org/10.3886/ICPSR01198.v1

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Distributor(s)

Inter-university Consortium for Political and Social Research
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Data Collection Notes

  1. (1) The file submitted is the data file 9811WD.DAT. (2) These data are part of ICPSR's Publication-Related Archive and are distributed exactly as they arrived from the data depositor. ICPSR has not checked or processed this material. Users should consult the investigator(s) if further information is desired.

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Original Release Date

1999-06-23

Version History

2018-02-15 The citation of this study may have changed due to the new version control system that has been implemented. The previous citation was:
  • Dewald, William G. Historical United States Money Growth, Inflation, and Inflation Credibility. ICPSR01198-v1. Ann Arbor, MI: Inter-university Consortium for Political and Social Research [distributor], 1999-06-23. http://doi.org/10.3886/ICPSR01198.v1
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Notes

  • These data are flagged as replication datasets and are distributed exactly as they arrived from the data depositor. ICPSR has not checked or processed this material. Users should consult the investigator(s) if further information is desired.

  • The public-use data files in this collection are available for access by the general public. Access does not require affiliation with an ICPSR member institution.