Applicability of Newton's law of cooling in monetary economics

Inflation is a phenomenon which attracts the attention of many researchers. Inflation is not a recent date phenomenon, but it has existed ever since money emerged in world's first economies. With the development of economy and market, inflation developed as well. Today, even though there is a considerable number of research papers on inflation, there is still not enough knowledge about all factors which might cause inflation, and influence its evolution and dynamics. Regression analysis is a powerful statistical tool which might help analyse a vast amount of data on inflation, and provide an answer to the question about the factors of inflation, as well as the way those factors influence it. In this article Newton's Law of Cooling was applied to determine the long-term dynamics of monetary aggregates and inflation in Serbia and Croatia.