ABSTRACT
Our evidence suggests that money is not associated with real GDP in both the long and the short runs. It is well understood that central banks use liquidity to manage aggregate demand and financial crises. But how do we explain the continuously accelerating money creation? We examine three potential explanations for the significant increases in money creations over the sample from 1960 to 2020. These explanations may include (1) seigniorage revenues; (2) continuous deficit spending financed by fiat money creations, and (3) the propping up of asset prices such as stock and housing, which might have been considered real wealth. We find that these variables are highly associated with money growth.
