Please be more specific and give an example. One of the assertions is that changes in Federal Reserve policy can affect inflation. Do
the data support a connection between the rate of increase in the money supply and
inflation? Using the data on the growth rate of M2 and inflation in your spreadsheet, run
a regression of the rate of inflation on the rate of growth of the money supply. What does
the coefficient on the money supply variable tell you? What is the meaning of the p-
value? Is the regression coefficient significant? Is faster money growth always
associated with higher inflation?
Data on Money Growth and Inflation
Money is average annual growth rate of M2 over 5 year periods
Inflation is average annual rate of CPI over 5 year periods
Period Ending Money Inflation
1965 9 1.6
1970 7.9 4.2
1975 11.5 8
1980 12 10.5
1985 11 7
1990 7 4.9
1995 2.8 3.8
2000 7.1 3
2005 10.1 2.7
