" Abenomics, an effort to boost the economy by fundamentally changing inflation expectations"
that is price voodoo too
lets dig in here
the hawks believe in
" immaculate inflation immaculate inflation immaculate inflation "
"a large Fed balance sheet can translate into an inflation surge even with the economy depressed."
"It’s not clear how they think this would work;
who, exactly, is going to raise prices in the face of all that economic slack? "
hawks view what we’re going through as a supply-side phenomenon;
don’t believe that we are suffering from a demand shortfall,
don’t think the zero lower bound makes any difference.
this is essentially demand pull
in a scarce credit ration system changes in net expansion of ration rate
as here
"the inflation we experience is from a rise in demand caused by cheap financing."
cheap here suggests rationing by rate which is faulty modeling but
we'll get by with this:
" cheap financing is a result of the Federal Reserve printing more money."
"However, as this money works its way through various markets
we should see them respond as markets respond to increased demand,
through an increase in both output and prices."
.
"We can take a step back and interpret these events as saying liquidity demand is being satiated. Or, we can take a micro perspective and say that the demand for goods and services in these markets is increasing. Either way we look at it, however, demand driven inflation should be drive a rise in production."
"In an economy with little unemployment we would expect this to bid up wages as employers competed for scarce labor."
" The result would simply be higher prices and wages and a distortion of long term contracts like mortgages. "
"However, in an economy with high unemployment we should expect some of this to result in an increase in hiring. "
then there's supply contraction inflation
"It is always possible that inflation is actually occurring first in commodity markets."
or factor markets
"inflation driven by gasoline prices is “bad.” It almost certainly represents an increase in the price of a commodity – oil and a reduction in the supply of gasoline.
This means that we expect contraction in the gasoline market. In addition through income effects we should expect a contract in the demand in other individual markets."
.
"However, when inflation is coming through the final goods market it means that real resources are being pulled towards US households and firms. the net effect in each individual market will be an increase in output."
but what about this spontaneous spirals
like this
higher wage/ re mark up to maintain margins /higher products /prices
this can be a self perpetuating process
and it may require credit ration increases to sustain itself
these processes become embedded in expectations
at any rate
now can we get inflation rate changes
by "the source of credit"
managing to " change price and wage setters inflation expectations" ?
enter voodoo macro
