A Re-Appraisal of the Role of Monetary Policy: The Quantity Theory of Money through a Structural Vector Autoregressive Approach

Abstract

The COVID-19 pandemic, the Russia–Ukraine and the Israel–Hamas conflicts, and the resulting global economic shocks will affect the world economy for several years. This paper analyzes and discusses monetary finance (MF) using the Quantity Theory of Money (QTM) to understand economic dynamics. To achieve this goal, we utilize a Structural Vector Autoregressive (SVAR) identification scheme with sign restrictions on datasets from advanced economies. The findings indicate that monetary growth plays a role in short-term inflationary dynamics, while its effects are less significant in the medium to long term. The aim of the paper is to contribute to ongoing debate surrounding the potential strategies for addressing the economic downturn through the reintroduction of monetary finance (MF).