http://archives.econ.utah.edu/archives/pkt/1995m08-d...

Probably the best such source is another of your Federal Reserves, in a paper by F Kydland and E Prescott, "Business Cycles: Real Facts and a Monetary Myth" (which despite its title is not a defence of real business cycle theory!), Federal Reserve of Minneapolis Quarterly Review, Spring 1990, pp. 3-18.

There they conclude (inter alia), on the basis of a long run comparative study of the business cycle in a number of economies, that:

(a) "There is no evidence that either the monetary base or M1 leads the cycle, although some economists still believe this monetary myth. Both the monetary base and M1 series are generally procyclical and, if anything, the monetary base lags the cycle slightly." (p. 14)

(b) "the US price level clearly has been counter- cyclical in the post-Korean War period". (p. 17)

Put these two facts together: that the (rate of change of) the monetary base goes up when the economy goes up, and the price level goes down when the economy goes up, and what you get is *apparently* a perverse monetarism, a negative relationship between money supply growth and inflation.

Apparently because, as is clear from (a) above, the growth of the economy drives the growth of M1 (money is endogenous), rather than the other way round.

LG,