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Posted by Warren Mosler (208.49.176.241) on 07:14:26 11/29/07
In Reply to: Pure Inflation posted by Winslow R.
: "Pure inflation is identified, and it has a simple interpretation: it is the common component
: in price changes that has an equiproportional effect on all prices and is uncorrelated with
: changes in relative prices at all dates. We label it pure because, by construction, its
: changes are uncorrelated with relative-price changes at any point in time. In a simple
: flexible-price classical model where money is neutral, pure inflation would equal the
: money growth rate.
In that model there is no 'money' as we know it, it's just an arbitrary numeraire. The elegant definition of 'inflation' in functionally inapplicable, as is that definition in any context I can think of.
More generally, it corresponds to the famous thought experiment
: that economists have used since Hume (1752): imagine that all prices increase in the
: same proportion, but no relative price changes. "
:
: http://econ.ucsd.edu/seminars/0708seminars/rw_35.pdf
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