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DLBS - Money Supply Is Only Part Of The Monetary Story
Barclays Bank PLC ZC SP ETN REDEEM 13/08/2020 USD 50 - Ser A 06740L444
Editor's note: Originally published at tsi-blog.com on March 26, 2019.
[This blog post is an excerpt from a recent TSI commentary.]
The Quantity Theory of Money (QTM) holds that the change in money Purchasing Power ((PP)) is proportional to the change in the Money Supply ((MS)). It's a bad theory, because it doesn't reflect reality.
There are three main reasons that QTM doesn't work in the real world, the first being that money PP can't be expressed as a single number. There is no such thing as the "general price level". Instead, at any point