Real supply shocks and the money growth–inflation relationship

This paper analyzes how real supply shocks affect monetary policy. Although it is widely accepted that money growth and inflation are one-to-one related in the long run, short run deviations are usually the case. Theoretically, we analyze whether such short run deviations can be attributed to global real supply shocks impinging on the economy, and empirically we provide evidence in favor of this hypothesis as well confirming that the money growth rate and inflation is one-to-one related in the long run for the United States.