DYNAMICS OF THE MONEY SUPPLY AND ITS IMPACT ON INFLATIONARY PROCESSES IN THE EUROPEAN UNION ECONOMY
DOI:
https://doi.org/10.32782/inclusive_economics.12-27Keywords:
money supply, inflation, monetary aggregates, monetary policy, the Eurozone, the European Central Bank, macroeconomic stabilityAbstract
The article provides a theoretical synthesis of approaches to determining the role of the money supply in forming inflationary processes and ensuring macroeconomic stability in the Eurozone. It is shown that the dynamics of monetary aggregates serve as one of the key indicators of the state of the money market, price dynamics, and the effectiveness of monetary policy. It is determined that, under current economic conditions, changes in the volume of the money supply affect aggregate demand, investment activity, economic growth parameters, and the general price level. It is substantiated that the quantity theory of money remains an important methodological foundation for analyzing the relationship between the money supply, the velocity of money, the price level, and real gross domestic product. The economic meaning of the money supply as a set of liquid assets that perform payment, settlement, and savings functions within the system of economic relations is explained. The main monetary aggregates used by the European Central Bank, namely M0, M1, M2, and M3, are identified, and their structural characteristics are described. Particular attention is paid to the analysis of money supply dynamics in the Eurozone in 2001–2025, which revealed a steady upward trend across all major aggregates. The results obtained made it possible to identify key patterns in the development of the money market and its impact on inflation dynamics in the Eurozone economy. It was found that the most rapid expansion of the money supply occurred in the periods following global economic crises and in the context of the use of monetary stimulus tools. It is emphasized that the M3 aggregate plays a decisive role in the ECB’s monetary policy monitoring framework, as it most fully reflects the state of liquidity in the financial system. It is stressed that the influence of the money supply on inflationary processes is both direct and indirect, and that assessing its dynamics requires taking into account time lags, structural changes, and the characteristics of the monetary environment.
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