Several Illustrations of the Quantity Theory of Money: 1947-1987 and 1867-1975 A.G. MALLIARIS This paper explores empirical relationships that involve the five quantity theoretic variables: rates of change in money supply, velocity, real output, inflation and also short-term nominal interest rate. Unlike, earlier studies that employ, primarily, regression methods to identify statistical relationships, this study uses the two-side exponentially weighted moving average methodology. This method smooths the original data to various degrees depending on the values of a given weight parameter to exclude as much noise as possible and, thus identifies probable trends. Using intermediate-term and long-term data sets, some much analyzed quantity theoretic relationships are reconfirmed, some new ones are proposed and finally, some less known, are reemphasized. zyxwvutsrqponmlkjihgfedcbaZYXWVUTSRQPONMLKJIHGFE I. INTRODUCTION Milton Friedman and Anna Schwartz (1982, p. 17) state that the quantity theory of money is a theory that has taken many different forms and traces back to the very beginning of systematic thinking about economic matters. It has probably been tested with quantitative data more extensively than any other set of propositions in formal economics-unless it be the negatively sloping demand curve. Nonetheless, the quantity theory has been a continual bone of contention. We are reminded of Bertrand Russell who said, “My sad conviction is that people can only agree about what they are not really interested in.” This is one more paper about the quantity theory of money. It is motivated by the work of Friedman and Schwartz (1963a, 1982), who have exhaustively investigated the economic role of money in general and specifically its impact on inflation, nominal interest rates and real output. The primary tool of the Friedman and Schwartz methodology is regression analysis. However, our paper is patterned after Lucas (1980), who presented empirical illustrations of two central implications of the quantity theory of money by using a two-sided exponentially weighted moving average methodology applied to data for the period 1955- 1975. The two central implications of the quantity theory of money studied by Lucas refer to the notion that a given change in the rate of change in the quantity of money induces, first, an A.G. Malliaris l The Walter F. Mullady Sr. Professor of Business Administration, Department of Economics, Loyola University of Chicago, 820 North Michigan Avenue, Chicago, IL 6061 I. zyxwvutsrqponmlkjihgfedcbaZYXWV International Review of Financial Analysis, Volume 1, Number 1, 1992, pages 77-93. Copyright 0 1992 hv JAI FWss. Inc. All rights of reproduction in any form reserved. ISSN: 10574219 77