Posts Tagged purchasing power
Frankly, these statements are incredibly stupid. Inflation means prices and incomes are rising at about the same rate. Any increase in salaries will just keep pace with inflation, leaving the consumer with unchanged purchasing power. The only way people who borrow can pay back with cheaper dollars is if the inflation is a complete surprise. If the inflation is expected, it will be part of the interest rate on the loan. Finally, higher housing prices? Give me a break. Even if housing prices rose, the real net wealth in your house wouldn’t change much because the higher price level would eat up the price increase.
Introduction Economists take it for granted that everyone knows the definition of the real interest rate: r = i – p where i is the nominal interest rate and p is the inflation rate. The real interest rate measures the net transfer of purchasing power from borrowers to lenders. Lenders will be repaid i dollars […]
Blanchard’s argument is that by raising the inflation target, nominal interest rates would be higher. This, he proposes, would give central banks more room to reduce interest rates to stimulate the economy. Unfortunately, Prof. Blanchard has made an error that should make him blush.
central banks, inflation rate, inflation target, international monetary fund, macroeconomic policy, nominal interest rate, olivier blanchard, policy prescriptions, purchasing power, real interest rate
- The Alpaca Bubble Has Burst November 26, 2015According to NPR, at one point alpacas were selling for “tens of thousands of dollars” per animal. A recent ad on craigslist offered 30 of them for $3,000. Now that’s a bubble!TonyLima
- I Was Wrong About ZIRP October 10, 2015Not, mind you, because the Fed will raise interest rates any time soon. No, the geniuses at the Federal Open Market Committee and the Board of Governors seem to be leaning in a different direction: NIRP. ... Better get used to seeing those initials. They stand for negative-interest-rate policy. That’s right. The Fed thinks they […]TonyLima
- I Am Back October 10, 2015A new article will be up in a few minutes. Looking forward to getting back to writing about one of the subjects I love.TonyLima
- Chicago and Puerto Rico Show How Not to Do It July 16, 2015Don't buy Chicago bonds. Unless your net worth is at least $1 billion, don't buy Puerto Rico bonds. Scrutinize the holdings of any bond funds in which you own an interest.TonyLima
- The Alpaca Bubble Has Burst November 26, 2015
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