Some pictures, for those who believe in the constant or trend velocity Quantity Theory for the US.

Figure 1: Log M2 divided by real GDP (blue), log GDP deflator (tan), both 2000Q1=0. NBER defined peak-to-trough recession dates shaded gray. Source: BEA, Federal Reserve Board via FRED, NBER, and author’s calculations.

Figure 2: Nominal GDP divided M2 (blue), in logs. NBER defined peak-to-trough recession dates shaded gray. Source: BEA, Federal Reserve Board via FRED, NBER, and author’s calculations.

These graphs highlight the fact that a cross-country graph of money and price growth over the past 40 years, including high-inflation countries such as Turkey, Brazil and Argentina, will miss large deviations within countries, particularly those with (relatively) small monetary shocks.

Source: Tim Congdon, Institute of International Monetary Research, August 21, 2023.

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