This simple conceptual framework points to the usefulness of examining the determinants of global portfolio allocation patterns and it can also help explain the observed longterm statistical relationship between global inflation and money creation. Overall, apart from a few episodes, there was a positive correlation between long-term inflation and trend money growth in industrial countries until the mid-1990s (see Chart 8).
In the event, the Fed had to allay fears of an excessively tight policy cycle and, in reality, what tightening has occurred since then has been very moderate and well communicated. But while there are similarities to the taper tantrum, there are important differences as well. At that stage, it was only the US that was looking to tighten policy.