Money, Inflation, and Models - NYTimes.com

Increasing the monetary base during demand-deficient recessions doesn't necessarily lead to inflation. The last eight years in the US seem to have proven this. Japan from the nineties on and the Great Recession were also examples.

Money, Inflation, and Models - NYTimes.com

Consider the relationship between the monetary base — bank reserves plus currency in circulation — and the price level. Normal equilibrium macro models say that there should be a proportional relationship — increase the monetary base by 400 percent, and the price level should also rise by 400 percent. And the historical record seems to confirm this idea. Back in 2008-2009 a lot of people were passing around charts like this one, which shows annual rates of money base growth and consumer prices over the period from 1980-2007: 

Credit 

It seemed totally obvious to many people that with the Fed adding to the monetary base at breakneck speed, high inflation just had to be around the corner. That’s what history told us, right? 

Except that those who knew their Hicks declared that this time was different, that in a liquidity trap the rise in the monetary base wouldn’t be inflationary at all (and that the relevant history was from Japan since the 1990s and from the 1930s, which seemed to confirm this claim). And so it proved, as shown by the red marker down at the bottom.