As the limits of fiscal policy become obvious, monetary policy tools look increasingly attractive to policymakers. Discussion Paper 8049 re-examines the evidence for quantity theory and finds that the textbook relationship between average inflation and the growth rate of money is tenuous in many cases. The authors caution policymakers not to over-interpret the conclusion of quantity theory.

The monetary policy framework in the Eurozone emphasises the role of monetary aggregates, but less so their differences across member countries. This column argues that the surveillance of national monetary developments may prove useful, as they may have been masking diverging trends at the country level which had systemic financial stability implications for the Eurozone.