Money Growth and Inflation: A Wavelet Analysis for a Monetization Approach to COVID 19

Abstract

Abstract COVID 19 pandemic will cause a global economic contraction. The magnitude of shocks will impact the fiscal deficit and the public debt in all Countries. This paper provides an insight into the dynamic relationship between money growth and inflation for several Countries. The Morlet wavelet coherence model is employed since it allows the simultaneous examination of lead-lag effects and co-movements between the couple of variables in the different Countries. The overall results do not evidence a clear impact of the money growth on inflation. This outcome has relevant economic policy consequences considering that the monetization of the public debt can sustain the economic recovery. Thus, the pure monetary nature of the inflationary phenomenon can hardly be considered as a constraint in designing the measures to counteract the issue.