Report
Will this crisis restore a link between money creation and inflation?
In the United States as in the euro zone, there has not been any link between the money supply and inflation since the 1990s. The usual explanation is that in contemporary economies, a portfolio choice model applies: if there is additional money supply, economic agents use it to buy more financial and real estate assets, and at equilibrium it is the prices of these assets that rise and not the prices of goods and services. For the money creation implemented in the context of the coronavirus crisis to bring back inflation, another model would have to apply: that where the additional money supply leads to additional demand for goods and services and not to demand for assets. This may be the case if money creation finances household and corporate income, which is used to consume and invest, because we are de facto in a situation of helicopter money, even after the end of the crisis.
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Natixis
Based across the world’s leading financial centers, Natixis CIB Research offers an integrated view of the markets. The team provides support to inform Natixis clients’ investment and hedging decisions across all asset classes.
Patrick Artus
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