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Essays on Inflation

Essays on Inflation

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This volume contains articles on the subject of inflation, most of which originally appeared in the Federal Reserve Bank of Richmond's Economic Review. Collectively the articles summarize the major issues current in contemporary discussions of the inflation problem. Topics covered include theories of inflation, reasons for its persistence, models of the inflationary transmission mechanism, the relationship between inflation and unemployment, the formulation of inflationary expectations, inflation and the demand for money, interest rates and inflation, international aspects of inflation under fixed and floating exchange rates, and the feasibility of alternative anti-inflationary policies. These topics are examined from the perspective of the history of economic doctrines as well as from that of modern economic analysis. The purpose is to indicate the basic similarities in classical and current analyses of inflation and to demonstrate that virtually all of the ideas, arguments, and policy views underlying modern inflation debates have their roots in earlier policy controversies. In this connection, the collection incorporates additional essays dealing with the monetarist-nonmonetarist debate, the exchange rate doctrines of early monetary theorists, thehistorical evolution of the money demand concept, and the policy lessons of the German hyperinflation. Finally, because inflation is primarily a monetary phenomenon in the sense that it cannot long continue without the monetary growth necessary to sustain it, this volume emphasizes inflation theories that highlight the relationship between money and prices and that strongly support a policy of strong, noninflationary growth.

Additional essays deal with Keynes' views on inflation, with Adam Smith's theory of the international adjustment mechanism, with a terms-of-trade-augmented model of the monetary approach to exchange rates, with David Hume's and Henry Thornton's reconciliation of the quantity theory of money with the notion of a stable long-run trade-off between unemployment and inflation, with the early history of the Fisherian distinction between real and nominal interest rates, with the classical conception of the duties of the lender of last resort, and with the anti-growth views prevalent in the early 1970s. These topics are also examined from a monetarist doctrinal/historical position.

There are articles on the Phillips curve, the MV = PQ equation of exchange, and the notion of the short-run nonneutrality of money. The text shows how these tools have been employed in inflation analysis, past and present.