The Lag From Money to Prices
Economist generally agree that money affects prices with a lag. Research conducted at the Federal Reserve Bank of St. Louis suggests that a change in the growth rate of money is fully reflected in the inflation rate in about five years. This conclusion was based on a statistical analysis of the relation between money and prices in the United States from 1955 through the 1960s. The purpose of this article is to examine the relation between money and prices in light of the U.S. economic experience of the 1970s. Statistical results are summarized first, and the economics of information and search are then summarized to provide a theoretical rationale for the results.