First of all, we see that in the first half of 2023, inflation drops basically equally fast in both scenarios and the reason for that is that since we have assumed a six-month lag between changes in money supply growth (and therefore in the P-gap) it will take six months before any change in monetary policy is visible in inflation.
Therefore, in the model set-up any slowdown in inflation in the coming six months will be due to the slowdown in money supply growth we saw during 2022.
The Market Monetarist 25 January 2023
The Great Recession was not caused by a banking crisis but rather by excessively tight monetary policy
The Market Monetarist 13 September 2021
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