Journal ArticleDOI
On a Correct Measure of Inflation
Armen A. Alchian,Benjamin Klein +1 more
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In this paper, the authors use the Fisherian tradition of a proper definition of intertemporal consumption and lead to the conclusion that a price index used to measure inflation must include asset prices.Abstract:
Two commonly cited and newsworthy price indices are the Bureau of Labor Statistic's Consumer Price Index and the Commerce Department's GNP deflator. These indices have become an important part of our economic intelligence and are frequently considered to be the operational counterparts of what economists call "the price level." They, therefore, often are used as measures of inflation and often are targets or indicators of monetary and fiscal policy. Nevertheless, these price indices, which represent measures of current consumption service prices and current output prices, are theoretically inappropriate for the purpose to which they are generally put. The analysis in this paper bases a price index on the Fisherian tradition of a proper definition of intertemporal consumption and leads to the conclusion that a price index used to measure inflation must include asset prices. A correct measure of changes in the nominal money cost of a giverl utility level is a price index for wealth. If monetary impulses are transmitted to the real sector of the economy by producing transient changes in the relative prices of service flows and assets (i.e., by producing short-run changes in "the" real rate of interest), then the commonly used, incomplete, current flow price indices provide biased short-run measures of changes in "the purchasing power of money." The inappropriate indices that dominate popular and professional literature and analysesread more
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Journal ArticleDOI
Asset prices, financial and monetary stability: exploring the nexus
Claudio Borio,Philip Lowe +1 more
TL;DR: In this article, the authors argue that financial imbalances can build up in a low inflation environment and that in some circumstances it is appropriate for policy to respond to contain these imbalance.
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Procyclicality of the financial system and financial stability: Issues and policy options
Abstract: In recent decades, developments in the financial sector have played a major role in shaping macroeconomic outcomes in a wide range of countries. Financial developments have reinforced the momentum of underlying economic cycles, and in some cases have led to extreme swings in economic activity and a complete breakdown in the normal linkages between savers and investors. These experiences have led to concerns that the financial system is excessively procyclical, unnecessarily amplifying swings in the real economy. In turn, these concerns have prompted calls for changes in prudential regulation, accounting standards, risk measurement practices and the conduct of monetary policy in an attempt to enhance both financial system and macroeconomic stability.
Book
Asset prices and central bank policy
TL;DR: The second report in a series of Geneva Reports on the World Economy, organized by the Center for International Monetary and Banking Studies, Geneva, in conjunction with the Centre for Economic Policy Research as discussed by the authors, discusses the role of asset price misalignments and bubbles.
Journal ArticleDOI
Monetary policy and asset prices
TL;DR: In this paper, the authors survey the literature on asset prices and monetary policy and consider the appropriate policy response to two types of shocks that are associated with how asset prices affect the economy.
Posted Content
Asset-price bubbles and monetary policy
Christopher Kent,Philip Lowe +1 more
TL;DR: In this paper, the authors develop a theoretical framework that helps to analyse the role of monetary policy in responding to asset-price bubbles and demonstrate that there may be circumstances where monetary policy should be tightened in response to an emerging asset price bubble, in order to burst the bubble before it becomes too large, even though this means that expected inflation is below target.
References
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Book
The Economics of Welfare
TL;DR: Aslanbeigui et al. as mentioned in this paper discussed the relationship between the national dividend and economic and total welfare, and the size of the dividend to the allocation of resources in the economy and the institutional structure governing labor market operations.
Book
A Treatise on Money
TL;DR: The applied theory of money and its fluctuation is discussed in detail in this paper, with a focus on the rate of investment and its changes over the last few decades, as well as the relation of central banks to one another.
Book ChapterDOI
The Role of Securities in the Optimal Allocation of Risk-bearing
TL;DR: In this article, an extension of the theory of the optimal allocation of resources under conditions of certainty is presented, and an extension to conditions of subjective uncertainty is considered, where the authors consider an optimal allocation under subjective uncertainty.
Journal ArticleDOI
Short-Term Fluctuations in U.S. Voting Behavior, 1896–1964
TL;DR: This paper developed several simple multivariate statistical models and applied them to explain fluctuations in the aggregate vote for the United States House of Representatives, over the period 1896-1964, and found that voters are rational in at least the limited sense that their decisions as to whether to vote for an incumbent administration depend on whether its performance has been "satisfactory" according to some simple standard.