Inflation is the Ill-defined economic bogeyman. There is no such thing as the “wage-price spiral”; the “price-wage spiral”; or the “cost-push spiral”; in the sense that increases in wages, prices, or costs are causes of inflation.
Unless effective demands (money times transactions’ velocity) are adequate to prevent a cutback in sales, or a diversion of purchasing power to the price raisers, any administered increase in prices will result in less sales, smaller outputs, less employment, lower payrolls and less demand for products—in other words, depression and deflation in due course.
Convenient. Just the right data to support the narrative. It ironic. Inflation increases. The only way to contain it is to give smaller than inflation raises to the working stiffs. In other words to lower the living standard of the working class.
I mainly agree but would say that inflation/deflation are _always_ caused by the Fed. Shocks whether demand or supply, positive of negative affect how much inflation is income maximizing and how much is excessive. Is this what B&B mean by their division between supply shocks and demand? But even this is not right as relative price shocks can arise from the demand side that in the presence heterogeneously sticky prices merit Fed-created inflation to allow income-maximizing adjustments. Of course the Fed does not have a perfect model to indicate exactly which settings of which policy instruments produce that much and no more inflation. But conceptually that is what we want the Fed to do.
Personally, I am a little suspicious of analyses that give outsized importance to "wages,"* a highly heterogeneous category over any other sub-aggregate.
Another point: DSGE models are great for analyzing the costs and benefits of policies that change relative prices. They are designed to show changes in resource distribution between one equilibrium and another As such they are not immediately relevant to analyzing changing prices, even relative prices, during the passage from one equilibrium to another.
* And BTW, we do not have data on wages. Bureau of Labor Statistics does not collect wage data. It collects disaggregated data on the unit value of labor remuneration.
Inflation is the Ill-defined economic bogeyman. There is no such thing as the “wage-price spiral”; the “price-wage spiral”; or the “cost-push spiral”; in the sense that increases in wages, prices, or costs are causes of inflation.
Unless effective demands (money times transactions’ velocity) are adequate to prevent a cutback in sales, or a diversion of purchasing power to the price raisers, any administered increase in prices will result in less sales, smaller outputs, less employment, lower payrolls and less demand for products—in other words, depression and deflation in due course.
Convenient. Just the right data to support the narrative. It ironic. Inflation increases. The only way to contain it is to give smaller than inflation raises to the working stiffs. In other words to lower the living standard of the working class.
I mainly agree but would say that inflation/deflation are _always_ caused by the Fed. Shocks whether demand or supply, positive of negative affect how much inflation is income maximizing and how much is excessive. Is this what B&B mean by their division between supply shocks and demand? But even this is not right as relative price shocks can arise from the demand side that in the presence heterogeneously sticky prices merit Fed-created inflation to allow income-maximizing adjustments. Of course the Fed does not have a perfect model to indicate exactly which settings of which policy instruments produce that much and no more inflation. But conceptually that is what we want the Fed to do.
Personally, I am a little suspicious of analyses that give outsized importance to "wages,"* a highly heterogeneous category over any other sub-aggregate.
Another point: DSGE models are great for analyzing the costs and benefits of policies that change relative prices. They are designed to show changes in resource distribution between one equilibrium and another As such they are not immediately relevant to analyzing changing prices, even relative prices, during the passage from one equilibrium to another.
* And BTW, we do not have data on wages. Bureau of Labor Statistics does not collect wage data. It collects disaggregated data on the unit value of labor remuneration.
excelente texto, João
Tks