Monetary facts revisited

This paper uses a cross-country database covering 46 economies over the post-war period to revisit two key monetary facts: (i) the long-run link between money growth and inflation and (ii) the link between credit growth and financial crises. The analysis reveals that the former has weakened over time, while the latter has become stronger. Moreover, the money-inflation nexus has been stronger in emerging market economies than in advanced economies, while it is the other way round for the link between credit growth and financial crises. These results suggest that there is an inverse relationship between the two monetary facts. The money-inflation link is weaker in regimes characterised by low inflation and highly liberalised financial systems, while the reverse holds true for the credit-crisis nexus.

JEL classification: E31, E42, E51, E52

Keywords: quantity theory, credit growth, financial crises