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This is an old revision of this page, as edited by 111.69.236.247 (talk) at 08:54, 9 July 2013 (→Cost-Push Inflation). The present address (URL) is a permanent link to this revision, which may differ significantly from the current revision.

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Value of the Dollar

Wouldn't it be useful to have on the page a graph showing the change in purchasing power of the dollar over time? This would more visibly demonstrate the actual effect of inflation than the graphs of the change in the inflation rate over time.Classicragger (talk) 19:50, 8 June 2012 (UTC)[reply]

Presumably you mean the US dollar? There are lots of currencies, and economies, outside the USA and I'm wary of even more of our econ content becoming USA-centric.
"Purchasing power" is a slightly slippery thing, and any choice there is controversial... bobrayner (talk) 21:11, 8 June 2012 (UTC)[reply]

Another theory to explain inflation

Dr Paul Dalziel, in "Money, Credit and Price Stability", proposes a model of the inflationary process that I find very credible. Broadly, it runs as follows:

1. Assume there is no physical currency in circulation. The only medium of exchange is bank balances; people pay other people by transferring "money" from one account to another. This is not too far off the current reality.

2. Businesses finance their capital investment using a combination of bank loans and equity (share) issues, and they have an optimal debt/equity ratio.

3. When a bank advances a loan to a business to finance capital investment, it opens a loan account with a negative balance and a current (checking) account with an offsetting positive balance. The business then uses the balance in this current account to buy capital equipment and/or other stuff, transferring the balance to the accounts of the suppliers of these goods, who are (ultimately) households. This process increases the total amount of "money" in the economy, ie total balances of all households' current accounts.

4. Households are the owners of equities. Most of their liquid wealth is held in the form of equities, but some is held as bank balances ("money") used to facilitate day-to-day transactions. As money is more liquid, but equities pay a better return, households have an optimal money/equity ratio.

5. If businesses' desired debt/equity ratio is higher than households' desired money/equity ratio, then businesses (via their banks) will be putting more "money" into circulation than households want to hold. Households will attempt to dispose of the surplus by buying equities. However, the quantity of equities available to be held by households is fixed, so households cannot (in aggregate) buy more; their attempt to do so will only drive prices up. As the price of equities rises, so (ultimately) will the prices of everything else. The resulting inflation erodes the real value of households' bank balances, so that their money/equity ratio drops to its desired level.

6. The rate of inflation is a function of (1) the difference between the optimal debt/equity and money/equity ratios, and (2) the rate of economic growth. The reason for the latter is that rapid economic growth means that businesses are doing more capital investment, taking out more bank loans, and thereby increasing the supply of "money" more rapidly.

Should this model be included in the Inflation article? — Preceding unsigned comment added by 111.69.251.57 (talk • contribs) 10:48, June 30, 2012‎

The question isn't whether the model is credible (which is your opinion), but whether the source is credible. I don't see evidence of that. — Arthur Rubin (talk) 17:44, 7 August 2012 (UTC)[reply]

Well, the source is a published book written by a Professor of Economics. How much more credible does it need to be?

Controlling inflation by stimulating growth

This article is missing a subsection under "Controlling inflation" on economic growth. When the economy grows faster than the money supply, that's generally deflationary, so anything that can increase growth will tend to control inflation to some extent. For investments like infrastructure upkeep that return more to the economy than it takes to accomplish them, it's usually straightforward; similarly for education (turning would-be high school dropout taxpayers into college graduate taxpayers), preventative healthcare, etc. I tried to put this into an expanded paragraph at Inflation#Controlling inflation but someone really needs to make it into its own section there. All the other options are sort of Plan B since economic growth usually does a whole lot of other good things. I.e., you only want to tighten credit when you know for sure that the money supply is going to grow faster than the economy; perhaps because of too much borrowing in government fiscal policy. —Cupco 10:59, 18 September 2012 (UTC)[reply]

plus Added with some references. —Cupco 03:00, 19 September 2012 (UTC)[reply]

Shoe leather and Menu costs?

Are these troll sentences? — Preceding unsigned comment added by 106.203.45.239 (talk) 09:31, 20 September 2012 (UTC)[reply]

No, those are actual costs associated with inflation that some economists try to model. They are particularly severe under hyperinflation such as in Zimbabwe recently, but oddly stimulative in their own right. Feel free to add or request citations; they aren't difficult to find. —Cupco 10:04, 20 September 2012 (UTC)[reply]

Inflation is perhaps best explained using RtNmP

Inflation, when you change your observer viewpoint from rock-bottom or stellar heights to neutral mid mode level, is nothing more than a re-calibration onto the mid-mode operating neutral between rock-bottom & stellar high. It is the mean sum-product return to neutral of each and every platform that pertains to that valuation, when you subtract the increment. Lot´s of people have a tendency to multiple that out (Divide that out), however it is not a multiplication process, inflation being an addicion and not a percentage, due succesive depletion & saturation product cycles where that never returns to neutral untill there is a paper devaluation.

  • ∑∏(midmode operating point)/N

Terms:

Economy is a sum-zero game, and a sum zero game is inherently a small signal onto a neutrally biased operating point.

(ps: don´t start with your eternal internal robotic heckling about original research et all. All you need is a capacity to think through the terms mentioned above). — Preceding unsigned comment added by 201.208.167.177 (talk) 12:18, 20 March 2013 (UTC)[reply]

NAIRU

Isn't NAIRU to do with monetarist economics, rather than Keynesian? MFlet1 (talk) 11:22, 30 April 2013 (UTC)[reply]

Cost-Push Inflation

Why is this included as one of the negative effects of inflation? Isn't it just a tad circular to argue that inflation is caused by inflation?

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