• DOI:10.4159/harvard.9780674067851.c4
• Corpus ID: 154846455

Two Illustrations of the Quantity Theory of Money

@article{Lucas1980TwoIO,
  title={Two Illustrations of the Quantity Theory of Money},
  author={Robert E. B. Lucas},
  journal={The American Economic Review},
  year={1980},
  volume={70},
  pages={1005-1014},
  url={https://api.semanticscholar.org/CorpusID:154846455}
}

• R. Lucas
• Published 1980
• Economics
• The American Economic Review

of two central implications of the quantity theory of money: that a given change in the rate of change in the quantity of money induces (i) an equal change in the rate of price inflation; and (ii) an equal change in nominal rates of interest. The illustrations were obtained by comparing moving averages of the three variables in question, using quarterly U.S. time-series for the period 1953-77. Readers may find the results of interest as additional confirmation of the quantity theory, as an… 

of two central implications of the quantity theory of money: that a given change in the rate of change in the quantity of money induces (i) an equal change in the rate of price inflation; and (ii) an equal change in nominal rates of interest. The illustrations were obtained by comparing moving averages of the three variables in question, using quarterly U.S. time-series for the period 1953-77. Readers may find the results of interest as additional confirmation of the quantity theory, as an example of one way in which the quantity-theoretic relationships can be uncovered via atheoretical methods from time-series which are subject to a variety of other forces, or as a measure of the extent to which the inflation and interest rate experience of the postwar period can be understood in terms of purely classical, monetary forces. The theoretical background of the study is reviewed, very briefly as it is familiar material, in the next section. The data processing methods are described and rationalized in Section II. The illustrations