<p>There has been talk of these sorts of policies being inflationary. It looks like the problem will more likely be too little inflation, rather than too much.</p>
<p>The larger cost, however, is to do nothing. These handouts have helped bolster consumer spending and helped consumers meet their debt repayments. Without these handouts, you would likely see far more business failures and more bankruptcies, pressuring the financial system.</p>
<p><a href="https://www.investopedia.com/articles/investing/022615/why-didnt-quantitative-easing-lead-hyperinflation.asp" rel="nofollow noreferrer">Investopedia</a> covers the basics:</p>
<blockquote>
<p>So where did all the M0 money go if it wasn't multiplied through the credit system? The answer is that banks and financial institutions hoarded the money in order to shore up their own balance sheets and regain profitability.</p>
</blockquote>
<p>A theory that I'm quite partial to is the concept of a balance sheet recession. The idea that these shocks cause institutional trauma that last longer than one would expect. Businesses are less likely to take advantage of low rates because they are already comfortable with their balance sheets. <a href="https://www.youtube.com/watch?v=8YTyJzmiHGk" rel="nofollow noreferrer">Richard Koo</a> discusses this here. Note this video is long, but fascinating.</p>

CC BY-SA 4.0
2021-02-23T10:03:01.143Z
That seems to combine two different issues: (a) balancing total supply and demand so overall prices do not fall or rise too quickly and (b) keeping going companies and jobs which will be viable post-lockdown/social distancing so the frictional costs of losing them and later replacing them can be avoided
Henry
CC BY-SA 4.0
2021-02-23T13:22:26.140Z
@Henry note the second part would've been a lot easier if we'd chosen to stop the pandemic in, say, April, instead of continuing it.
Criticize SE actions means ban
CC BY-SA 4.0
2021-02-23T13:42:43.300Z
Hi, could you please consider adding sources to your answer we are trying to improve the level of discourse on this site (see this [meta](https://economics.meta.stackexchange.com/questions/2080/what-can-we-learn-from-other-se-sites))
1muflon1
CC BY-SA 4.0
2021-02-23T05:43:48.690Z
2021-06-17T23:34:01.770Z
2021-06-17T23:34:01.770Z
Jamzy
<blockquote>
<p>Will printing more money during COVID cause hyperinflation?</p>
</blockquote>
<p>Likely not for several reasons. First, the article from economicshelp.org you mention is oversimplifying the economics, which is understandable as it is article written for non-economists, but to understand this issue we need to go little bit further.</p>
<p>Inflation, is simply just positive change in price level and price level of an economy is determined by the equilibrium at money market. The money market equilibrium, in its simplified form (more complex models include expectations of the quantities as well but this should suffice for this answer) is given by equation of exchange (See Mankiw Macroeconomics pp 87) as:</p>
<p><span class="math-container">$$MV=PY.$$</span></p>
<p>Where <span class="math-container">$M$</span> is the money supply, <span class="math-container">$V$</span> velocity of money, <span class="math-container">$P$</span> price level and <span class="math-container">$Y$</span> output.</p>
<p>Solving for price level and log-linearizing (so % changes in right hand side variables give us the % change in P) we get:</p>
<p><span class="math-container">$$\ln P=\ln M+\ln V−\ln Y.$$</span></p>
<p>Hence, it is true that inflation depends on increase in money supply but it also depend on changes in velocity of money and real output. If money supply increases by <span class="math-container">$30\%$</span> and real output decreases (due to pandemic) by <span class="math-container">$10\%$</span> and velocity drops by <span class="math-container">$40\%$</span> these effects cancel out and even <span class="math-container">$30\%$</span> increase in money supply would not lead to any inflation.</p>
<p>In fact one of the main reasons why we did not see much inflation recently is that velocity of money dropped significantly as you can see from <a href="https://fred.stlouisfed.org/series/M2V" rel="noreferrer">Fred data</a>. It is not clear if velocity will pick up in near future and as long as it remains low it will be offsetting considerable amount of increase in money supply despite of significant drop of real output.</p>
<p>Next, it is important to understand what hyperinflation is. Following Cagan The Monetary Dynamics of Hyperinflation, hyperinflation can be defined as an increase in price level that exceeds <span class="math-container">$50\%$</span> per month.</p>
<p>This means that in terms of the simple model <span class="math-container">$\Delta M + \Delta V - \Delta Y  = 50\%$</span> <strong>per month</strong>.  There is simply not enough money creation going on  in most countries to hit that <span class="math-container">$50\%$</span> per month value to classify as hyperinflation. For example, in the US the money stock as measured by <span class="math-container">$M2$</span> increased during last <strong>year</strong> by <span class="math-container">$\approx 19\%$</span> (see <a href="https://fred.stlouisfed.org/series/M2" rel="noreferrer">Fred data</a>). While, that is without doubt large increase relative to previous years, it is far cry from increase in money supply that would lead to hyperinflation, even taking into account drop in output due to covid. Hyperinflation would not be caused by changes in velocity either because even though it is possible it would pick up later velocity usually does not increase fast month by month.</p>
<p>Lastly, if there would be any signs of hyperinflation independent central banks would start acting. In countries like Zimbabwe central banks are not independent and often they are forced to expand money supply rapidly by politicians. In most developed countries central banks are independent and for most part run by technocrats. Central banks have plethora of tools to sharply reduce money supply.</p>
<p>Even though people often just label all money creation money printing this is really just analogy as it is easier to explain money supply increases to people that way, but in reality most money are created by banking system via lending and central banks control the amount of money that can be created by changes in interest rates on its reserves (see for example <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2416234" rel="noreferrer">McLeay, Radia, &amp; Thomas; 2014</a>). Next money are also created when Fed borrows money to the government via its open market operations. Only very small fraction of money are actually printed each year and similar picture holds for most developed nations.</p>
<p>Consequently, if Fed or any other modern independent central bank would spot signs of not just hyperinflation but even high inflation (like <span class="math-container">$10\%$</span> per year) they would quickly start hiking interest rates which would slow money creation and eventually even destroy part of new money, they would stop buying government bonds or even sell them again destroying part of money supply and so on. Independent central banks are quite good 'inflation fighting machines' and empirical literature, for the most part, shows that there is negative relationship between central bank independence and inflation (e.g. see <a href="https://www.sciencedirect.com/science/article/pii/S0176268008000530?casa_token=JwoQstGhogEAAAAA:nh9BFkCyuJ7z4fcWdreKPtALgo17_BSZG-9kHDpy-CdhOAo310vqbsiHoixuXAeQaTh3CjWwu-I" rel="noreferrer">Jácome &amp; Vázquez; 2008</a>).</p>
<p>Of course, it is not literally impossible that the situation will be mishandled, and heads of central banks are still typically appointed by politicians in most countries  so there is possibility of political capture of central banks, but as the things look like now I would say that hyperinflation in most developing countries is astronomically unlikely in near future.</p>

CC BY-SA 4.0
2021-02-23T12:14:28.040Z
Great answer, the equation of exchange and log linearising is a big help
logee
CC BY-SA 4.0
2021-02-23T13:20:54.867Z
I strongly suspect that if prices rose by 49% per month (11873% per year) it would still be viewed as hyperinflation. Even 20% per month is enough to make most peoples' savings completely worthless in a couple of years, and force the government to issue new denomination bills several times.
Criticize SE actions means ban
CC BY-SA 4.0
2021-02-23T14:39:38.507Z
@user253751 I am sure some people would call even 15-20% inflation *per year* Hyperinflation. However, if we want to discuss this in fact based manner we have to rigorously define hyperinflation and it is just natural to take the definition used quite often in the literature
1muflon1
CC BY-SA 4.0
2021-02-23T11:58:17.027Z
2021-02-23T12:03:35.660Z
2021-02-23T12:03:35.660Z
1muflon1
<p>When COVID started, many countries started printing loads of money and handing it out to their people. Here are some examples</p>
<p><a href="https://www.usatoday.com/in-depth/money/2020/05/12/coronavirushow-u-s-printing-dollars-save-economy-during-crisis-fed/3038117001/" rel="noreferrer">US is printing money to help save the economy from the COVID-19 crisis</a></p>
<p><a href="https://nymag.com/intelligencer/2020/05/were-paying-for-coronavirus-stimulus-by-printing-money.html" rel="noreferrer">We’re Paying for Coronavirus Stimulus by Printing Money</a></p>
<p><a href="https://www.businessinsider.com.au/countries-offering-direct-payments-or-basic-income-in-corona-crisis-2020-4?r=US&amp;IR=T" rel="noreferrer">14 countries that are paying their workers during quarantine</a></p>
<p><a href="https://www.bbc.com/news/business-52450958" rel="noreferrer">Coronavirus bailouts</a></p>
<p><a href="https://www.cfr.org/in-brief/why-countries-are-giving-people-cash-amid-pandemic" rel="noreferrer">Why Countries Are Giving People Cash Amid the Pandemic</a></p>
<p>There are definitely people that need the support but also many that won't bother finding work because the handouts are more than what they were earning before. So if there are less people working, doesn't that imply a drop in 'Goods and Services' produced by the country? And with all the money being printed and handed out, that's an increase in money being circulated.</p>
<p>The article <a href="https://www.economicshelp.org/blog/634/economics/the-problem-with-printing-money/" rel="noreferrer">The problem with printing money</a> does a good job of explaining the effects of unrestrained money printing when the 'Goods/Services' of a country remains constant. However, I'm arguing that goods and services are decreasing but the money being circulated has increased which is even worse.</p>
<p>I know of <a href="https://en.wikipedia.org/wiki/Hyperinflation" rel="noreferrer">hyperinflation</a> in <a href="https://en.wikipedia.org/wiki/Hyperinflation_in_the_Weimar_Republic" rel="noreferrer">Germany</a> after WWI and <a href="https://en.wikipedia.org/wiki/Hyperinflation_in_Zimbabwe" rel="noreferrer">Zimbabwe</a> in more recent times from all the money printing. I'm sure there are other examples in history.</p>
<p>So are the countries doing all this money printing on road to hyperflation? If not, why not?</p>

CC BY-SA 4.0
2021-02-23T13:55:01.593Z
*When COVID started, many countries started printing loads of money and handing it out to their people.* — really?  Which ones?
gerrit
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2021-02-23T14:05:43.857Z
USA, Japan, Australia ... I'm sure there are lots more
logee
CC BY-SA 4.0
2021-02-24T01:20:51.537Z
Could you either drop the Covid bit, or explain what difference it makes? 

Don't you think printing more money pretty-much defines causing inflation? How is that related to hyperinflation, or Covid?

"… why not?" is because in Germany then, Zimbabwe now and several others in between, long before their governments started printing extra notes their currencies were externally branded worthless.
Robbie Goodwin
CC BY-SA 4.0
2021-02-24T02:05:52.907Z
Welcome to the site. Thanks for contributing. Could you address @gerrit 's comment with a link to a news article providing a specific example? This could greatly improve the quality of this question. Thanks
jmbejara
CC BY-SA 4.0
2021-02-24T03:13:36.580Z
A more rational approach might be: if the economy of a country shrinks by x% because of an infectious disease, then deny medical treatment to x% of the population and let them die. That way, everything stays in economic balance. (/irony).
alephzero
CC BY-SA 4.0
2021-02-24T03:18:55.770Z
Your linked news articles are just talking about countries where there are recurring supplementary payments available to people because of covid. As far as I understand it, these don't necessarily mean that the government is _printing_ more money than usual, just that they're paying more (offset against tax income or recorded as debt). So is your question about the impact of printing money generally, or just about the impact of recurring supplementary payments during the pandemic?
Xono
CC BY-SA 4.0
2021-06-18T11:56:54.237Z
"printing loads of money" involves much more than the simple phrase implies. This article addresses a lot of the issues in your question: http://mickanomics.blogspot.com/2021/03/what-people-still-get-wrong-about-qe.html
Mick
<inflation><covid-19-crisis>
Will printing more money during COVID cause hyperinflation?
logee
# Will printing more money during COVID cause hyperinflation?

(Asked by: username_0 on 2021-02-23)

When COVID started, many countries started printing loads of money and handing it out to their people. Here are some examples

[US is printing money to help save the economy from the COVID-19 crisis](https://www.usatoday.com/in-depth/money/2020/05/12/coronavirushow-u-s-printing-dollars-save-economy-during-crisis-fed/3038117001/)

[We’re Paying for Coronavirus Stimulus by Printing Money](https://nymag.com/intelligencer/2020/05/were-paying-for-coronavirus-stimulus-by-printing-money.html)

[14 countries that are paying their workers during quarantine](https://www.businessinsider.com.au/countries-offering-direct-payments-or-basic-income-in-corona-crisis-2020-4?r=US&IR=T)

[Coronavirus bailouts](https://www.bbc.com/news/business-52450958)

[Why Countries Are Giving People Cash Amid the Pandemic](https://www.cfr.org/in-brief/why-countries-are-giving-people-cash-amid-pandemic)

There are definitely people that need the support but also many that won't bother finding work because the handouts are more than what they were earning before. So if there are less people working, doesn't that imply a drop in 'Goods and Services' produced by the country? And with all the money being printed and handed out, that's an increase in money being circulated.

The article [The problem with printing money](https://www.economicshelp.org/blog/634/economics/the-problem-with-printing-money/) does a good job of explaining the effects of unrestrained money printing when the 'Goods/Services' of a country remains constant. However, I'm arguing that goods and services are decreasing but the money being circulated has increased which is even worse.

I know of [hyperinflation](https://en.wikipedia.org/wiki/Hyperinflation) in [Germany](https://en.wikipedia.org/wiki/Hyperinflation_in_the_Weimar_Republic) after WWI and [Zimbabwe](https://en.wikipedia.org/wiki/Hyperinflation_in_Zimbabwe) in more recent times from all the money printing. I'm sure there are other examples in history.

So are the countries doing all this money printing on road to hyperflation? If not, why not?

**Tags:** inflation, covid-19-crisis
> **Comments:**
> **username_1**: *When COVID started, many countries started printing loads of money and handing it out to their people.* — really?  Which ones?  
> **username_0**: USA, Japan, Australia ... I'm sure there are lots more  
> **username_2**: Could you either drop the Covid bit, or explain what difference it makes?   Don't you think printing more money pretty-much defines causing inflation? How is that related to hyperinflation, or Covid?  "… why not?" is because in Germany then, Zimbabwe now and several others in between, long before their governments started printing extra notes their currencies were externally branded worthless.  
> **username_3**: Welcome to the site. Thanks for contributing. Could you address @gerrit 's comment with a link to a news article providing a specific example? This could greatly improve the quality of this question. Thanks  
> **username_4**: A more rational approach might be: if the economy of a country shrinks by x% because of an infectious disease, then deny medical treatment to x% of the population and let them die. That way, everything stays in economic balance. (/irony).  
> **username_5**: Your linked news articles are just talking about countries where there are recurring supplementary payments available to people because of covid. As far as I understand it, these don't necessarily mean that the government is _printing_ more money than usual, just that they're paying more (offset against tax income or recorded as debt). So is your question about the impact of printing money generally, or just about the impact of recurring supplementary payments during the pandemic?  
> **username_6**: "printing loads of money" involves much more than the simple phrase implies. This article addresses a lot of the issues in your question: http://mickanomics.blogspot.com/2021/03/what-people-still-get-wrong-about-qe.html  

---

## 2 answers

### Answer by username_10 on 2021-02-23. Score: 14 | Accepted answer

> Will printing more money during COVID cause hyperinflation?

Likely not for several reasons. First, the article from economicshelp.org you mention is oversimplifying the economics, which is understandable as it is article written for non-economists, but to understand this issue we need to go little bit further.

Inflation, is simply just positive change in price level and price level of an economy is determined by the equilibrium at money market. The money market equilibrium, in its simplified form (more complex models include expectations of the quantities as well but this should suffice for this answer) is given by equation of exchange (See Mankiw Macroeconomics pp 87) as:

$$MV=PY.$$

Where $M$ is the money supply, $V$ velocity of money, $P$ price level and $Y$ output.

Solving for price level and log-linearizing (so % changes in right hand side variables give us the % change in P) we get:

$$\ln P=\ln M+\ln V−\ln Y.$$

Hence, it is true that inflation depends on increase in money supply but it also depend on changes in velocity of money and real output. If money supply increases by $30\%$ and real output decreases (due to pandemic) by $10\%$ and velocity drops by $40\%$ these effects cancel out and even $30\%$ increase in money supply would not lead to any inflation.

In fact one of the main reasons why we did not see much inflation recently is that velocity of money dropped significantly as you can see from [Fred data](https://fred.stlouisfed.org/series/M2V). It is not clear if velocity will pick up in near future and as long as it remains low it will be offsetting considerable amount of increase in money supply despite of significant drop of real output.

Next, it is important to understand what hyperinflation is. Following Cagan The Monetary Dynamics of Hyperinflation, hyperinflation can be defined as an increase in price level that exceeds $50\%$ per month.

This means that in terms of the simple model $\Delta M + \Delta V - \Delta Y = 50\%$ **per month**. There is simply not enough money creation going on in most countries to hit that $50\%$ per month value to classify as hyperinflation. For example, in the US the money stock as measured by $M2$ increased during last **year** by $\approx 19\%$ (see [Fred data](https://fred.stlouisfed.org/series/M2)). While, that is without doubt large increase relative to previous years, it is far cry from increase in money supply that would lead to hyperinflation, even taking into account drop in output due to covid. Hyperinflation would not be caused by changes in velocity either because even though it is possible it would pick up later velocity usually does not increase fast month by month.

Lastly, if there would be any signs of hyperinflation independent central banks would start acting. In countries like Zimbabwe central banks are not independent and often they are forced to expand money supply rapidly by politicians. In most developed countries central banks are independent and for most part run by technocrats. Central banks have plethora of tools to sharply reduce money supply.

Even though people often just label all money creation money printing this is really just analogy as it is easier to explain money supply increases to people that way, but in reality most money are created by banking system via lending and central banks control the amount of money that can be created by changes in interest rates on its reserves (see for example [McLeay, Radia, & Thomas; 2014](https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2416234)). Next money are also created when Fed borrows money to the government via its open market operations. Only very small fraction of money are actually printed each year and similar picture holds for most developed nations.

Consequently, if Fed or any other modern independent central bank would spot signs of not just hyperinflation but even high inflation (like $10\%$ per year) they would quickly start hiking interest rates which would slow money creation and eventually even destroy part of new money, they would stop buying government bonds or even sell them again destroying part of money supply and so on. Independent central banks are quite good 'inflation fighting machines' and empirical literature, for the most part, shows that there is negative relationship between central bank independence and inflation (e.g. see [Jácome & Vázquez; 2008](https://www.sciencedirect.com/science/article/pii/S0176268008000530?casa_token=JwoQstGhogEAAAAA:nh9BFkCyuJ7z4fcWdreKPtALgo17_BSZG-9kHDpy-CdhOAo310vqbsiHoixuXAeQaTh3CjWwu-I)).

Of course, it is not literally impossible that the situation will be mishandled, and heads of central banks are still typically appointed by politicians in most countries so there is possibility of political capture of central banks, but as the things look like now I would say that hyperinflation in most developing countries is astronomically unlikely in near future.

> **Comments:**
> **username_0**: Great answer, the equation of exchange and log linearising is a big help  
> **username_9**: I strongly suspect that if prices rose by 49% per month (11873% per year) it would still be viewed as hyperinflation. Even 20% per month is enough to make most peoples' savings completely worthless in a couple of years, and force the government to issue new denomination bills several times.  
> **username_10**: @user253751 I am sure some people would call even 15-20% inflation *per year* Hyperinflation. However, if we want to discuss this in fact based manner we have to rigorously define hyperinflation and it is just natural to take the definition used quite often in the literature  

---

### Answer by username_7 on 2021-02-23. Score: 1

There has been talk of these sorts of policies being inflationary. It looks like the problem will more likely be too little inflation, rather than too much.

The larger cost, however, is to do nothing. These handouts have helped bolster consumer spending and helped consumers meet their debt repayments. Without these handouts, you would likely see far more business failures and more bankruptcies, pressuring the financial system.

[Investopedia](https://www.investopedia.com/articles/investing/022615/why-didnt-quantitative-easing-lead-hyperinflation.asp) covers the basics:

> So where did all the M0 money go if it wasn't multiplied through the credit system? The answer is that banks and financial institutions hoarded the money in order to shore up their own balance sheets and regain profitability.

A theory that I'm quite partial to is the concept of a balance sheet recession. The idea that these shocks cause institutional trauma that last longer than one would expect. Businesses are less likely to take advantage of low rates because they are already comfortable with their balance sheets. [Richard Koo](https://www.youtube.com/watch?v=8YTyJzmiHGk) discusses this here. Note this video is long, but fascinating.

> **Comments:**
> **username_8**: That seems to combine two different issues: (a) balancing total supply and demand so overall prices do not fall or rise too quickly and (b) keeping going companies and jobs which will be viable post-lockdown/social distancing so the frictional costs of losing them and later replacing them can be avoided  
> **username_9**: @Henry note the second part would've been a lot easier if we'd chosen to stop the pandemic in, say, April, instead of continuing it.  
> **username_10**: Hi, could you please consider adding sources to your answer we are trying to improve the level of discourse on this site (see this [meta](https://economics.meta.stackexchange.com/questions/2080/what-can-we-learn-from-other-se-sites))  

---

