New study predicts inflation trends accurately using money and output data!
The Quantity Theory of Money suggests that changes in the price level are mainly influenced by the amount of money in the economy compared to real output. By analyzing multiple economic factors, researchers found that the general price level is linked to money, real output, and interest rates. This connection is consistent with money and real output affecting inflation. Using the theory, they accurately predicted inflation trends over the past decade, but only for a specific measure of money (M2, not M1).