Price stability is not only an important indicator of the healthy and stability of macro-economy, but also one of the goals of macroeconomic policy. There are many factors affecting inflation. Different monetary policy instruments, such as money supply, liquidity and market expectations, have different effects on inflation. Meanwhile, monetary policy goals, such as inflation rate, employment rate and economic growth rate, also affect each other.
This paper provides an empirical study of money supply, inflation and unemployment in the U.S. economy. Based on the existing theoretical and empirical analysis, this paper selects different research models and new data dimensions to study the relationship between money supply, unemployment and inflation from different angles for both theoretical and empirical aspects. This paper analyzes and defines the historical impact based on three-dimensional VAR model. In order to construct a multi-dimensional VAR model for analysis, this paper chooses the money supply in the monetary policy instruments and the unemployment rate in the monetary policy goals as the endogenous variables affecting inflation, and chooses the import price stably related to the growth of money supply as the exogenous variable. This paper uses the consumer price index (CPI) to represent the inflation rate and M1 money supply to represent the monetary aggregate. Finally, through the comparative analysis of inflation between China and the United States, the paper puts forward some thoughts and suggestions on the monetary policies. Through the research, it proves that the choice of money supply as an intermediary target is effective, but there is a certain lag in regulating consumption inflation. Meanwhile, it shows that there is a policy contradiction between the employment rate and the inflation rate.