Inflation and Money Growth in Different Countries

 “Inflation and Money Growth in Different Countries” clearly indicates that countries with high money growth are the countries that experience high inflation. If you were to draw a line through the points that came as close as possible to them, that line would have a positive slope. McCandless and Weber conclude as follows: “In the long run, there is a high (almost unity) correlation between the rate of growth of the money supply and the inflation rate. This holds across three definitions of money and across the full sample of countries and two subsamples.” [3]

Big Inflations Most of the countries in Figure 11.6 “Inflation and Money Growth in Different Countries”have inflation and money growth that are less than 20 percent. There are some outliers, however. For example, there is one country with inflation and money growth at 80 percent annually over the sample. This country is Argentina; we return to it later. There have been episodes in history where the rates of inflation were so large that they are difficult to comprehend. Germany, 1922–24 Table 11.1 “Prices in Germany” contains data for Germany in the early 1920s. [4] The second column is a measure of prices for each month, from January 1922 to June 1924. The third column computes the annual inflation rate by multiplying the monthly inflation rate by 12. The final column indicates the amount of time in days it would take for prices to double at the annual inflation rate indicated in the third column.