Monetary aggregates in the US since 2020 and post-COVID-19 inflation: evidence from the equation of exchange

Abstract

Starting from Irving Fisher’s equation of exchange ( ) at the basis of the quantity theory of money, we analyze from a theoretical macroeconomic-monetary perspective whether the increase of monetary aggregates M1 and M2 might have affected general prices. Moreover, we investigate why monetary aggregates have evolved differently for COVID-19 than in the global financial crisis (2007-2009). The article elaborates on data for the US from Q1/2020 to Q2/2022 and represents the first scientific contribution to the analysis of post-COVID-19 inflation by means of the equation of exchange. We find that money growth seems to have contributed to inflation supporting the “monetarist” view, but that non-monetary drivers such as supply shocks and increasing profit margins outweigh the monetary ones.