Thinking about a hairy situation
To satirize the theory that increases in the quantity of money cause increases in the price level, Richard Kahn theorized that increases in the quantity of hairpins cause increases in the percentage of women with long hair. If Kahn's satirical theory is taken seriously, then the situation in Japan in the 1990s requires some thought. In Japan in the 1990s, the percentage of long-haired women did not increase, despite an increase in the quantity of hairpins. This article considers such a situation by following Paul Krugman's thinking about a liquidity trap. The failure of an increase in the quantity of hairpins to increase the percentage of long-haired women is thought of as a failure of policymakers to credibly commit to a permanent increase in the quantity of hairpins.
Volume (Year): 36 (2014)
Issue (Month): 4 (July)
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