Sixty Years Of Money, GDP And The Price Level

Figure 1: M2 to real GDP ratio (blue, left scale), and Personal Consumption Expenditure deflator, 2012=100 (red, right scale). NBER defined recession dates shaded gray, assumes last trough at 2020Q2. Source: Federal Reserve via FRED, BEA, NBER and author’s calculations.

As noted in this December post, the explanatory power of the M2 to GDP ratio is essentially zero for the price level at the year horizon.

In logs, the relationship appears similarly tenuous.

Figure 2: M2 to real GDP log ratio (blue, left scale), and log Personal Consumption Expenditure deflator, 2012=100 (red, right scale). NBER defined recession dates shaded gray, assumes last trough at 2020Q2. Source: Federal Reserve via FRED, BEA, NBER and author’s calculations.

Disclosure: None.

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