Money and Inflation: A Taxonomy

Abstract

This paper reviews the various explanations for inflation and the relation between inflation and money aggregates. Two analytical distinctions are useful to understand different explanations of inflationary processes of all types. First, and more importantly, theories can be seen as cost-push or demand-pull theories of inflation. Second, the distinction between exogenous and endogenous money supply is important for a proper taxonomy of inflation theories. This second analytical cut results from the fact that there is a clear empirical connection between inflation and monetary stock measures. A tentative taxonomy is presented at the end, allowing an evaluation of the dominant view on money and inflation and the main counter points from a heterodox perspective.

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