The paper argues that increases in the monetary base do not always push up consumer prices because newly created money can fall into different “phases.” In plain terms, new base money can either circulate like cash and affect spending, or it can sit as reserve balances at the central bank and act more like a buffer. The authors introduce a simple, measurable quantity, phi = RB/MB, that gives the share of the monetary base held as reserves. They test this idea with monthly Bank of Japan data from 1971–2026.

To make the idea concrete, the researchers start from an accounting split of real output into three uses: reproduction (investment), consumption, and reservation (buffers or savings). They argue that money can replace some reservation assets—what they call a Saving‑Replacement Function—and that new nominal claims may be absorbed into reservation before they enter spending. The order parameter phi (reserve balances divided by the monetary base) is proposed as a way to tell whether the system is in a cash‑dominant phase (low phi) or a reserve‑dominant phase (high phi).

Using Japan’s long monthly record, the paper finds a clear compositional change after about 2013. The monetary base rose by large amounts in the post‑2013 period, but consumer price inflation moved smoothly. Fitting a Landau‑type order‑parameter curve (a tanh form) over 2010–2018, the authors find a well‑defined transition month near 2013 and a finite transition width. Breakpoint tests across windows are reported as robust. In other words, the expansion after 2013 was not only “more money” but money held in a different balance‑sheet configuration.

The authors then ask how unexpected increases in the base are absorbed. Using phase‑conditional local projections (a statistical method that isolates unexpected shocks in base growth), they report that in Japan unexpected base expansions raise phi—that is, they are taken up as reserve balances—rather than flowing into the goods transaction sector. As a result, the core consumer price index (CPI) response to these shocks is much weaker in the reserve phase and can even be negative. They formalize two inflation regimes: circulation‑driven inflation (when money enters spending) and reservation‑dominant inflation (when money accumulates as reserves and transmits weakly to CPI). The model also includes a phase‑dependent CPI coupling with a critical phi value above which transmission is attenuated.