[Paper Review] Quantitative Theory of Money or Prices? A Historical, Theoretical, and Econometric Analysis

José Mauricio Gómez Julián|ArXiv.org|Jan 24, 2025

Economic Theory and Policy3 citations

TL;DR

The paper analyzes the money–prices relationship across multiple countries (US, Canada, UK, Brazil) using historical data (1959–2022, etc.) and Bayesian/frequentist machine learning methods to test non-neutrality and reciprocal influence.

ABSTRACT

This research studies the relation between money and prices and its practical implications analyzing quarterly data from United States (1959-2022), Canada (1961-2022), United Kingdom (1986-2022), and Brazil (1996-2022). The historical, logical, and econometric consistency of the logical core of the two main theories of money is analyzed using objective bayesian and frequentist machine learning models, bayesian regularized artificial neural networks, and ensemble learning. It is concluded that money is not neutral at any time horizon and that, despite money is ultimately subordinated to prices, there is a reciprocal influence over time between money and prices which constitute a complex system. Non-neutrality is transmitted through aggregate demand and is based on the exchange value of money as a monetary unit.

Motivation & Objective

• Assess the historical and theoretical consistency of money–prices theories.
• Evaluate non-neutrality of money across time horizons.
• Quantify the dynamic influence between money and prices using econometric and ML methods.
• Investigate cross-country differences in the money–prices relationship (US, Canada, UK, Brazil).
• Provide an integrated Bayesian-frequentist framework for evidencing the money–prices interaction.

Proposed method

• Analyze quarterly data for US (1959–2022), Canada (1961–2022), UK (1986–2022), and Brazil (1996–2022).
• Apply objective Bayesian and frequentist models to test the core hypotheses.
• Use Bayesian regularized artificial neural networks and ensemble learning to capture nonlinearities.
• Examine the logical consistency of the two main theories of money within a non-neutral framework.
• Assess the transmission of non-neutrality through aggregate demand and the monetary unit’s exchange value.

Experimental results

Research questions

• RQ1 Does money exhibit non-neutrality at any time horizon across the studied economies?
• RQ2 Is there a reciprocal, time-ordered influence between money and prices?
• RQ3 How do Bayesian and frequentist methods compare in evaluating the money–prices relation?
• RQ4 What role do aggregate demand and the exchange value of money play in transmitting non-neutrality?
• RQ5 Do cross-country differences alter the strength or direction of money–price interactions?

Key findings

• Money is not neutral at any time horizon in the analyzed data.
• There is a reciprocal influence over time between money and prices, forming a complex system.
• Non-neutrality is transmitted through aggregate demand and the exchange value of money as a monetary unit.
• The combination of objective Bayesian, frequentist, and ML approaches supports a coherent view of money–price interactions.
• The results are derived from quarterly data across four economies over overlapping periods.