Very technical, but also very interesting article. Lots of econometrics, but to be honest, you just need to understand regression and correlation. They picked some variables from supply, demand, and policy and then used regression analysis to find links. Their main aim seems to be proving that Friedman’s idea of inflation (“always and everywhere a monetary phenomenon”) is wrong, or at least slightly wrong. They found that inflation is mostly driven by supply and demand factors and policy seems to have comparatively little effect on future inflation (although I am a bit skeptical).
Most interesting points:
"the price level increase preceded the money supply increase—that is, money supply rose to match the increased price level. “
Their regression analyses gave this:
The most interesting bits are the capital stock per capita and the population growth, which are shown to be very strongly correlated with inflation. The 10 year M2 growth is shown to be correlated (with similar correlation over different time frames), but is not that strongly correlated. So this article shows a supply and demand relationship for inflation, similar to Keynesian theory. So there are some interesting conclusions.
If this article is correct, central banks might be better off using “accumulate capital stock”, or population control (the horror!) as a policy. However, I’m slightly skeptical of this study (and econometrics in general). Why did they analyse so few variables? What data did they use? Were they selective in choosing data? Plus, there have been other studies which would show that inflation is indeed always a monetary phenomenon. So on so forth. Regardless, it’s a good article, I’ll leave you to form your own conclusions.