IESET.
Hypotheses·monetary·monetary_finance_zlb_no_inflation

Across the 2008-2014 ZLB era and the 2020-2021 pandemic-response window, large-scale de-facto monetary finance of fiscal expansion in the US, Japan, and the Eurozone did not produce headline-CPI inflation consistent with naive quantity-theoretic monetisation predictions: cumulative central-bank balance-sheet expansion exceeded 15% of GDP while CPI YoY remained below 3% in each economy across both windows.

Functional-finance / MMT prediction at slack regimes — that monetary-fiscal coordination at the ZLB transmits to output and employment with negligible inflation pass-through — is supported, while the textbook hyperinflation-from-money-printing prediction is refuted at the slack-regime margin.

REFUTEDengine/runs/monetary_finance_zlb_no_inflation

REFUTED — CPI threshold breach: USA zlb_2008_2014 peak 3.81% in 2008; USA covid_2020_2021 peak 4.68% in 2021; Eurozone CPI not loaded

confidence cueThis test cuts against the claim as written or misses its pre-declared threshold.

policy briefClear refutation

In ordinary language

In plain terms, this asks whether central bank balance sheet pct income is actually linked to better or worse cpi inflation yoy from 2008 to 2021.

plain answer

The data did not support the prediction. CPI threshold breach: USA zlb_2008_2014 peak 3.81% in 2008; USA covid_2020_2021 peak 4.68% in 2021; Eurozone CPI not loaded

why it matters

This matters because monetary claims should change belief only when they survive a pre-declared empirical test.

how the test works

It compares 7 country or place units from 2008 to 2021, using a local projections design, with fixed effects for country and year.

what was measured
What changed
  • Central bank balance sheet pct income
  • Consolidated government deficit pct income
What we checked
  • Cpi inflation yoy
  • Core cpi inflation yoy
  • Inflation expectations 5y5y forward
what this does not prove

A single test is not the whole truth. It narrows the claim under a specific sample, time period, and method. Strong policy conclusions need the pattern to survive nearby tests, alternative data, and serious objections.

verification

9 input datasets, 0 unresolved missing series, provenance status: reproducible hash verified.

Results

engine/runs/monetary_finance_zlb_no_inflation
1007550250200820152021USAJPNDEUFRAITAESPNLD
illustrative sketch · run pending
No coefficients yet. When the model fires, this chart will show cpi_inflation_yoy across 7 sampled countries over 2008–2021.
The shapes above are stylised — none of the lines are real data.
Placeholder for monetary_finance_zlb_no_inflation. Published chart will be generated from engine/runs/monetary_finance_zlb_no_inflation/chart_data.json.

Who has skin in the game — schools predicting on this

1 school list this hypothesis as a test of their position. The chips below are school-level scoreboard outcomes, not a second hypothesis verdict.

hypothesis verdict vs scoreboard outcome

The banner verdict judges this hypothesis as written. The scoreboard asks whether each school's polarity-corrected prediction was right. Raw status is not a school win: SUPPORTED supports schools that needed SUPPORTED, but refutes schools that needed REFUTED.

Modern Monetary Theorywins if SUPPORTEDschool refuted

Pre-registration

registration ordering unverified
first-spec commit 4c8ce8e · 2026-07-18T22:11:21Z
run generated · 2026-05-16T13:24:25Z
Run timestamp predates this path's first git-add commit (rebase, rename, or pre-git local run). Spec hash is still the path's first-add commit — not repository HEAD — but ordering is not a clean pre-registration proof.

Across the 2008-2014 ZLB era and the 2020-2021 pandemic-response window, large-scale de-facto monetary finance of fiscal expansion in the US, Japan, and the Eurozone did not produce headline-CPI inflation consistent with naive quantity-theoretic monetisation predictions: cumulative central-bank balance-sheet expansion exceeded 15% of GDP while CPI YoY remained below 3% in each economy across both windows. Functional-finance / MMT prediction at slack regimes — that monetary-fiscal coordination at the ZLB transmits to output and employment with negligible inflation pass-through — is supported, while the textbook hyperinflation-from-money-printing prediction is refuted at the slack-regime margin.

Falsification criterion — what would disprove this

set before the run · honoured after

This hypothesis is considered falsified if:

The hypothesis is falsified if any of the following hold: (a) CPI YoY exceeds 3% in any 6-month rolling window during 2008-2014 in USA or Japan or the Eurozone, (b) CPI YoY exceeds 3% in any 6-month window during 2020-2021 in any of the three economies, or (c) Granger causality from central-bank balance sheet to CPI rejects null at p<0.01 with positive coefficient at h=12-24 months on the joint 2008-2021 sample after controlling for output gap and oil prices.

formal test & threshold
test:      balance_sheet_to_cpi_pass_through_slack_regime
threshold: max(cpi_yoy_6m, USA/JPN/EUR, 2008-2014 union 2020-2021) < 3% AND granger_p(balance_sheet → CPI, h=12-24) > 0.01

Method

Template
local_projections
Fixed effects
country, year
Clustering
country
Sample
7 countries · 2008 – 2021
Evidence type
associational

Jordà local projections of CPI response to central-bank balance-sheet expansion shocks, restricted to slack regimes (short-rate ≤ 0.50% AND unemployment > NAIRU + 0.5pp). Horizon 1-24 months. Primary falsification: peak CPI response not significantly positive at p<0.01 at any horizon. Robustness: parametric VAR with monetary-finance indicator as alternative treatment.

Data

VariableSourceTransform
cpi_inflation_yoy
outcome
fred:CPIAUCSL (USA)tier 1
fred:JPNCPIALLMINMEI (JPN)tier 1
ecb:ICP.M.U2.N.000000.4.ANRtier 1
pct_change_yoy
core_cpi_inflation_yoy
outcome
fred:CPILFESL (USA)tier 1
boj:core_cpi (JPN)tier 1
pct_change_yoy
inflation_expectations_5y5y_forward
outcome
fred:T5YIFR (USA)tier 1
level_pct
central_bank_balance_sheet_pct_gdp
treatment
fred:WALCLtier 1
fred:GDP (USA)tier 1
boj:monetary_basetier 1
fred:JPNNGDP (JPN)tier 1
ratio_to_nominal_gdp
consolidated_government_deficit_pct_gdp
treatment
imf:GGXCNL_NGDPtier 2
oecd:underlying_primary_balancetier 2
pct_gdp
monetary_finance_indicator
treatment
constructed:binary = 1 in country-fiscal-years where central-bank net JGB/Treasury/sovereign purchases > 50% of net government debt tier 5
binary
short_rate
control
fred:DFF (USA)tier 1
ecb:FM (EUR)tier 1
boj:policy_rate (JPN)tier 1
level
output_gap
control
oecd:OutputGaptier 2
level
oil_price
control
imf_pcps:POILBREtier 1
log_diff
unemployment_rate
control
fred:UNRATE (USA)tier 1
ilostat:unemployment_ratetier 2
pct_labour_force

● ready  · ● pending  · ● reconstruct-needed

Detailed result card

Result card — monetary_finance_zlb_no_inflation

Verdict: REFUTED — CPI threshold breach: USA zlb_2008_2014 peak 3.81% in 2008; USA covid_2020_2021 peak 4.68% in 2021; Eurozone CPI not loaded

Pre-registration

  • Claim: Across the 2008-2014 ZLB era and the 2020-2021 pandemic-response window, large-scale de-facto monetary finance of fiscal expansion in the US, Japan, and the Eurozone did not produce headline-CPI inflation consistent with naive quantity-theoretic monetisation predictions: cumulative central-bank balance-sheet expansion exceeded 15% of GDP while CPI YoY remained below 3% in each economy across both windows. Functional-finance / MMT prediction at slack regimes — that monetary-fiscal coordination at the ZLB transmits to output and employment with negligible inflation pass-through — is supported, while the textbook hyperinflation-from-money-printing prediction is refuted at the slack-regime margin.
  • Falsification rule: The hypothesis is falsified if any of the following hold: (a) CPI YoY exceeds 3% in any 6-month rolling window during 2008-2014 in USA or Japan or the Eurozone, (b) CPI YoY exceeds 3% in any 6-month window during 2020-2021 in any of the three economies, or (c) Granger causality from central-bank balance sheet to CPI rejects null at p<0.01 with positive coefficient at h=12-24 months on the joint 2008-2021 sample after controlling for output gap and oil prices.
  • Falsification test: balance_sheet_to_cpi_pass_through_slack_regime

Comparison

  • shape: monetary_finance_cpi_threshold_gate
  • cpi_source_publisher: fred
  • threshold: CPI YoY must stay below 3% in 2008-2014 and 2020-2021 windows
  • rows: [{'country': 'USA', 'window': 'zlb_2008_2014', 'status': 'observed', 'n_obs': 7, 'max_cpi_yoy': 3.8149533987371864, 'max_cpi_yoy_year': 2008, 'breach_gt_3pct': True}, {'country': 'USA', 'window': 'covid_2020_2021', 'status': 'observed', 'n_obs': 2, 'max_cpi_yoy': 4.681242996018686, 'max_cpi_yoy_year': 2021, 'breach_gt_3pct': True}, {'country': 'JPN', 'window': 'zlb_2008_2014', 'status': 'observed', 'n_obs': 7, 'max_cpi_yoy': 2.7592334693625986, 'max_cpi_yoy_year': 2014, 'breach_gt_3pct': False}, {'country': 'JPN', 'window': 'covid_2020_2021', 'status': 'observed', 'n_obs': 2, 'max_cpi_yoy': -0.025010459216900927, 'max_cpi_yoy_year': 2020, 'breach_gt_3pct': False}]
  • coverage: {'USA': [1948, 2026], 'JPN': [1956, 2021], 'U2': None}
  • missing_eurozone_cpi: True

Extracted threshold: {'percent': 15.0}

Variables resolved

  • fred:CPIAUCSL (USA); fred:JPNCPIALLMINMEI (JPN); ecb:ICP.M.U2.N.000000.4.ANR (EUR aggregate)) → cpi_inflation_yoy (outcome, publisher=fred, n=147)
  • fred:CPILFESL (USA); boj:core_cpi (JPN) → core_cpi_inflation_yoy (outcome, publisher=fred, n=70)
  • fred:T5YIFR (USA) → inflation_expectations_5y5y_forward (outcome, publisher=fred, n=24)
  • fred:WALCL; fred:GDP (USA); boj:monetary_base; fred:JPNNGDP (JPN) → central_bank_balance_sheet_pct_gdp (treatment, publisher=fred, n=112)
  • imf:GGXCNL_NGDP; oecd:underlying_primary_balance → consolidated_government_deficit_pct_gdp (treatment, publisher=imf, n=8848)
  • fred:DFF (USA); ecb:FM (EUR); boj:policy_rate (JPN) → short_rate (controls, publisher=fred+ecb, n=106)
  • oecd:OutputGap → output_gap (controls, publisher=oecd, n=3331)
  • imf_pcps:POILBRE → oil_price (controls, publisher=imf_pcps, n=259)
  • fred:UNRATE (USA); ilostat:unemployment_rate → unemployment_rate (controls, publisher=fred+ilostat, n=10231)

Variables missing data

  • constructed: binary = 1 in country-fiscal-years where central-bank net JGB/Treasury/sovereign purchases > 50% of net government debt issuance; coded from BoJ flow-of-funds, Fed SOMA holdings, ECB asset purchase reports (treatment, name=monetary_finance_indicator)

Generated by scripts/run_descriptive.py at 2026-05-16T13:24:25+00:00

Strongest opposing argument

Every hypothesis ships with its charitable opposing argument. The framework earns credibility by handling objections at their strongest, not weakest.

Notes

Standard mainstream framing of the 2008-2014 and 2020-2021 episodes treats the absence of CPI inflation as a money-multiplier collapse story; the MMT/functional-finance framing reads it as confirmation that monetary finance is non-inflationary at slack. This hypothesis registers the latter prediction explicitly. Excludes 2022-2024 inflation episode from primary test as supply-side-driven (energy, food, supply chain) per the BIS, Fed, ECB staff decompositions; the hypothesis is not silent on 2022 but assigns it to the cost-push channel registered in inflation_cost_push_distributional_conflict_eurozone_2021_2024.

Authored framework. Read the transparency note.