Tuesday, May 23, 2017

Either trend inflation is zero or double entry accounting fails

Liberty Street Economists on measuring inflation:
The persistent component of inflation plays a critical role in many economic and financial decisions. For example, investment and saving choices as well as interest rate determination depend on the expected behavior of inflation over a long-run horizon. Similarly, the underlying trend in inflation plays a critical role in the conduct of monetary policy. Unfortunately, differentiating between persistent and transitory changes in inflation in a timely and reliable manner is a challenge. Consequently, a large research effort has focused on extracting the trend component of inflation from monthly data releases. 

It is a matter of assumption on what is inflation, exactly. 

All models define it differently.  But, my statement above holds, in all cases. If double entry accounting only works for the wealthy in a monopoly monetary regime, then the liability falls straight back upon the legislature; we get monetary regime change and a big requant.

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