Notice: This post has incorrect calculations for changes in the Fed Funds rate. See Fed Funds Rate and Inflation: Part 1 – Corrected.
How does CPI inflation vary as the Fed Funds rate changes? That is the next question in our investigation of possible cause-and-effect relationships for changes in inflation.
Marriner S. Eccles Federal Reserve Board Building, Wikipedia,
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In the United States, money is created as credit and debt. The US Constitution1 allows the federal government to produce money directly, but that is not how the nation has chosen to operate for most of its money. In this post, we look at the various sources for issuing credit and debt that provide money to run the country.
From a photo by Giorgio Trovato on Unsplash.
This post ranks the associations between changes in various sources of money and subsequent CPI inflation for inflationary surges from 1952 to 2023.
Image by Gerd Altmann from Pixabay.
Last week’s results show that confounding is possible for correlations of Household and Nonprofit Organization (HNO) Credit changes and Nonfinancial Corporate (NFC) Debt changes with subsequent CPI inflation changes.1 This post adds some detail to those observations.
Image by Arvid Olson from Pixabay
Previous results1 show that during a specific inflation surge, Household and Nonprofit Organization (HNO) Credit changes and Nonfinancial Corporate (NFC) Debt changes are correlated with each other and with subsequent CPI inflation changes. In such situations, confounding of associations are possible.
Confounding can be an issue when analyzing the association between quantities of money and inflation. Last week, we looked closely at a possible example of confounding. This week, we consider that example further.
Image by Richard Reid from Pixabay.
Confounding can be an issue in analyzing the association between quantities of money and inflation. In this post, we look more closely at a possible example of confounding.
Photo by Daniele Levis Pelusi on Unsplash.
We have found that the correlation relationships between various types of credit and inflation are variable over time. The same is true for the M2 money supply. The sources of credit studied are government deficit spending,1,6 consumer credit,2 mortgage debt,3 nonfinancial corporate credit,4 and financial sector debt.5 The correlation between the M2 money supply and inflation was reported here.7 The measure of inflation for these studies was the Consumer Price Index (CPI).8 In this and subsequent posts, we will review the results of previous studies. The objectives will be to understand the quantity of money vs. inflation correlation studies’ potential limitations and rank the observed correlations for possible importance.
Photo by Alexandre Perotto on Unsplash
This article concludes the analysis of the correlation patterns between the M2 Money Supply and Consumer Inflation (CPI). The last of the three types of inflation patterns (time periods with no significant inflation trends) is the subject of analysis here. The other two types of patterns (inflation surges1 and disinflation/deflation surges2) were analyzed previously. The conclusion discusses the correlation patterns for all time periods, looks for any common threads, and identifies important differences across time periods and types of correlation patterns.
Image by Gerd Altmann from Pixabay.
The full data sets for the 64 years from 1959 to 2022 show no discernable association patterns (correlations) for M2 money supply growth and consumer inflation changes.1 This post continues that analysis by looking specifically at the various regimes of inflation change during the 64-year timeline. This article analyzes the association of CPI with M2 during the four periods from 1959 to 2022 with negative inflation changes (disinflation/deflation) surges.
Image by Kevin Schneider from Pixabay
