# Does inflation equal change in M1 or M2?

According to monetarism, inflation can be predicted precisely by the change in money supply and GDP growth.

Does "money supply" here refer to M1 or M2, i.e. does it include debts created by private banks?

• Empirically, inflation cannot be predicted precisely by the change in money supply and GDP growth or by anything else – Henry Aug 10 at 13:47
• In particular the "velocity of money" is neither stable nor predictable. See fred.stlouisfed.org/series/M2V – Henry Aug 10 at 13:50

The money supply is in theory interpreted broadly so from that perspective $$M2$$ or even $$M3$$ would be more appropriate. Also empirical studies in this strand usually use $$M2$$ see for example Sargent and Surico (2011).
$$P=MV/Y$$
Where $$P$$ is price level, $$M$$ money supply, $$V$$ velocity of money and $$Y$$ real output. In more complex models expectations of these quantities matter as well. Hence it does not make sense to equate inflation to changes in $$M$$.