A popular view is that if a central bank raises inflation expectations,
demand will rise because significant amounts of money will be spent before it
loses its value.
But there is a problem, pointed out by George Selgin, namely that it’s
not just BUYERS who notice the increased forthcoming inflation: it’s SELLERS AS
WELL!!!! So if for the sake of argument, and plucking numbers out of thin air,
inflation induces buyers to up their spending by X% as from tomorrow, and
sellers are induced to raise their prices by X% as from tomorrow, all you get
is more inflation and no increased real demand.
Tee hee.
But there’s worse to come.
Suppose households or the private sector generally aims to maintain a
given level of money savings in REAL TERMS (a not unreasonable assumption). Or
more generally, and putting it in MMT parlance, suppose the private sector aims
for a given level of “net financial assets”, again in real terms.
In that case, far as I can see, raising inflation expectations would
induce the private sector to SAVE MORE rather than SPEND MORE.
Conclusion: . . . quite apart from the inherent costs of more inflation, raising
inflation expectations with a view to raising demand has serious potential
pitfalls. It’s not worth trying.
No comments:
Post a Comment
Post a comment.