World Economics

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Will the Current Money Growth Acceleration Increase Inflation?
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Tim Congdon, World Economics, June 2020
The coronavirus pandemic has not only come as a profound shock to the major economies, but also exposed tensions between leading schools of thought. Uncertainty has arisen about the medium- and long-term consequences of the policy responses to COVID-19. Will the pandemic, and the consequent major upheaval in economic policy, lead to deflation or more inflation? This article—which is intended above all as a contribution to the emerging deflation vs. inflation debate—begins by discussing official policy in recent months. It then states a position in the tradition of the quantity theory of money and develops the argument that inflation will rise significantly in the aftermath of the pandemic.
Double Deflation Casts Doubt on Existing GDP Data
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Brian Sturgess, World Economics, June 2017
Increasingly, national income statisticians, the specialists involved in producing real national income figures, and the users of those figures are living in a parallel universe. Most countries use an outdated and inaccurate method to estimate real Gross Domestic Product (GDP) by using what is termed single deflation. Best practice suggests using double deflation: one price index to deflate the prices of goods produced and another to deflate the value of intermediate goods used up in production. A recent study comparing single deflation calculations with double deflation official growth estimates for eight countries showed that, for some years, single deflation figures deviated up- or downwards from the official estimates by as much as 3–4 percentage points.
Deflation? What Deflation? Statistical Origins of Japan’s Declining Price Levels
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Masanaga Kumakura, World Economics, June 2015
Although Japan’s CPI is often criticized for potential upward bias, it deals with improvements in the quality of individual goods in ways that make the statistical inflation rate much lower than actual price changes. Moreover, the quantitative importance of this effect has risen progressively since the early 2000s due to increased weights of technology-intensive electronic products and changes in the method of adjusting their prices for quality improvement. Once this artificial effect is taken into account, it becomes questionable that Japan’s recent deflation has been so serious as to justify the adventurous monetary policy currently implemented by its central bank.

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