A framework for understanding inflation - with or without money
AbstractThis paper presents a model that pictures how inflation is determined in a decentralized market process where prices are set in both simultaneous and sequential contracts. Price setting is seen as a coordination game between the price setters of sequential contracts. An important property of the model is that inflation thus can be explained without any reference to the quantity of money.Following up the finding that inflation is determined in a coordination game, it is subsequently claimed that whenever inflation does not follow a random path, people do seem to follow some rule of thumb when predicting future price levels. In the last section of the paper, it is finally claimed that this rule is best understood as a focal point, and furthermore that the central banks provides the focal point for inflation in the western world today. Central banks could thus be shown to be able to influence inflation rates, although the quantity of money plays no part in this process.
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Bibliographic InfoPaper provided by Lund University, Department of Economics in its series Working Papers with number 2005:28.
Length: 19 pages
Date of creation: 16 May 2005
Date of revision:
Contact details of provider:
Postal: Department of Economics, School of Economics and Management, Lund University, Box 7082, S-220 07 Lund,Sweden
Phone: +46 +46 222 0000
Fax: +46 +46 2224613
Web page: http://www.nek.lu.se/en
More information through EDIRC
Central Banking; Focal Points; Inflation; Monetary Policy; Money; Quantity Theory;
Find related papers by JEL classification:
- C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
- E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
- E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
- E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
- E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-05-23 (All new papers)
- NEP-CBA-2005-05-23 (Central Banking)
- NEP-MAC-2005-05-23 (Macroeconomics)
- NEP-MON-2005-05-23 (Monetary Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Olivier Jean Blanchard & Stanley Fischer, 1989. "Lectures on Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262022834, January.
- Bengtsson, Ingemar, 2005. "Central bank power is a matter of faith," Working Papers 2005:21, Lund University, Department of Economics.
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