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© 2020 Relevant Protocols Inc.
A focused study group for the discussion of economics and economic policy.
28239 Members
We'll be adding more communities soon!
© 2020 Relevant Protocols Inc.
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Very interesting and excellent piece on the price control debate "Most economists would argue that inflation is a monetary phenomenon, so best dealt with via higher interest rates. In the textbooks, the process through which this works to reduce inflation is through expectations. By controlling the short-end interest rate, the central bank will make the longer end of the yield curve move up, raising the borrowing cost. This is important because inflation is thought to be driven by expectations of future price increases, which leads to a cumulative process wherein workers will bargain for higher wages to meet them. Wage pressures then lead to higher prices creating a "wage-price spiral." The central bank can cut into this spiral by setting expectations of higher borrowing costs."
Very interesting and excellent piece on the price control debate "Most economists would argue that inflation is a monetary phenomenon, so best dealt with via higher interest rates. In the textbooks, the process through which this works to reduce inflation is through expectations. By controlling the short-end interest rate, the central bank will make the longer end of the yield curve move up, raising the borrowing cost. This is important because inflation is thought to be driven by expectations of future price increases, which leads to a cumulative process wherein workers will bargain for higher wages to meet them. Wage pressures then lead to higher prices creating a "wage-price spiral." The central bank can cut into this spiral by setting expectations of higher borrowing costs."
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