Money Supply, Inflation, and Economic Growth: The Case of the Eurozone (1990–2022)
Résumé
This article examines the relationship between money supply, inflation, and economic growth in the Eurozone over the period 1990–2022. The analysis builds on two complementary theoretical frameworks: the Cobb–Douglas production function and the classical quantity theory of money, interpreted through a monetarist lens. To capture structural breaks and evolving transmission mechanisms, the study employs a Regime-Dependent Conditional Mean (RDCM) model and a Time-Varying Parameter Vector Autoregression (TVP-VAR). The results reveal the existence of two distinct macroeconomic regimes. In stable environments, monetary expansions are associated with inflationary pressures and lower output, consistent with monetarist predictions. In contrast, during unstable periods, the effects of monetary shocks tend to weaken or even reverse, reflecting heightened uncertainty and lower monetary velocity. These findings underscore the need for regime-contingent policy strategies. Pre-emptive tightening appears more effective under stable conditions, whereas accommodative measures are preferable in times of crisis to support aggregate demand. The study highlights the limitations of monetary policy in isolation and calls for stronger fiscal coordination and enhanced real-time monitoring of regime dynamics to ensure macroeconomic stability and promote sustainable growth.