Money growth controls inflation without needing current economic data, study finds.
The article explores how money can be used in monetary policy to control inflation. By comparing interest rates and money as policy tools, the researchers found that adjusting interest rates based on expected future costs can help maintain stable inflation. They used a model with economic shocks to analyze the relationship between money and inflation. The study suggests that in Finland, focusing on narrow money (M1) rather than harmonized M3 could be more effective for monetary policy. The researchers used different methods to estimate parameters and found that the model fits the data well. Overall, the findings indicate that controlling money growth can help manage inflation without needing real-time economic information.