redefining inflation

Another great post by Carleton University economist Nick Rowe.

Some Austrians (I can’t remember which ones) define “inflation” as “a growing supply of base money”. [Update: Jonathan Finegold gently corrects me.] This used to strike me, as it strikes most economists, as a bit daft. OK, I would think, you can define “inflation” that way if you want, but  “rising prices” is what the rest of us mean by “inflation”, and it just makes conversation harder.

But after spending a fortnight with my dear old mother on the farm in England, I’m begining to think those Austrians sort of have a point. And it’s related to Simon Wren-Lewis’ post about the political difficulties of increasing the inflation target to reduce the risk of hitting the Zero Lower Bound on nominal interest rates. And it’s also related to arguments Scott Sumner has made about abolishing the concept of “inflation” and targeting NGDP.

[continued at the link below]

Nick Rowe, “Redefining ‘inflation’: Austrians, NGDP targets, and my mother“, Worthwhile Canadian Initiative, 7 August 2013.

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