On the nature of monetary and price inflation and hyperinflation

TL;DR

This paper develops economic models linking money supply, GDP, and savings to inflation and hyperinflation, providing quantitative analysis of hyperinflation in the Weimar Republic and predicting CPI growth in the US.

Contribution

It introduces a new mathematical model for hyperinflation and demonstrates the relationship between monetary variables and inflation dynamics.

Findings

The US CPI growth rate depends on money supply, GDP, and savings growth.

A residual term is necessary for precise inflation modeling.

The hyperinflation period in the Weimar Republic was quantitatively characterized.

Abstract

Monetary inflation is a sustained increase in the money supply than can result in price inflation, which is a rise in the general level of prices of goods and services. The objectives of this paper were to develop economic models to (1) predict the annual rate of growth in the US consumer price index (CPI), based on the annual growth in the US broad money supply (BMS), the annual growth in US real GDP, and the annual growth in US savings, over the time period 2001 to 2019; (2) investigate the means by which monetary and price inflation can develop into monetary and price hyperinflation. The hypothesis that the annual rate of growth in the US CPI is a function of the annual growth in the US BMS minus the annual growth in US real GDP minus the annual growth in US savings, over the time period investigated, has been shown to be the case. However, an exact relationship required the use of a non-zero residual term. A mathematical statistical formulation of a hyperinflationary process has been provided and used to quantify the period of hyperinflation in the Weimar Republic, from July 1922 until the end of November 1923.