THE LINKAGE BETWEEN MONETARY GROWTH AND THE RELATIVE PRICE OF ELECTRICITY

摘要

There is wide agreement among economists that monetary growth drives average price levels over some timeframe. The exact timeframe may remain in doubt to economists, but both economic theory and empirical evidence indicates there is a direct causal linkage between monetary growth and average price levels. There is less agreement involving linkages between monetary growth and relative prices. Relative prices appear more amenable to microeconornic explanations, but there is an important area where relative prices have large macroeconomic implications. In the U.S., the early 1970's and the early 2000's furnishes examples of a macroeconomic economy suffering simultaneously from surging energy prices and sluggish real GDP growth. Given the slack demand in a struggling economy, it is tempting to pin the blame on one-time events (i.e., disruptions of oil supplies from politically volatile areas, short-sighted government policies hobbling exploration, explosive growth in emerging economies, and hurricanes). Another explanation worth investigating starts with the observation that expansive monetary policies often accompany the conflicted mix of booming energy prices and economic doldrums. The prime objective of this article lies in uncovering the linkages between booming energy prices and monetary growth. This article investigates the linkage between monetary growth and the price of electricity in the U.S.