How Inflation Lowers Inflation

As new money is created by the banking system, it enters the price system as the recipients spend it. As the prices of some goods rise, this should be captured in the CPI, right?

Not necesssarily. New money does not impact all prices uniformly. And the CPI does not include all prices, only consumer goods prices, and even then unevenly. If the effect of the new money is mainly felt through financial assets or those consumption goods not included in the CPI, then the CPI will not reflect impact of the new money on prices...more>>

Identity and economics: what are we missing?

Is identity the missing motivation of economics? UC Berkeley's George Akerlof and University of Maryland's Rachel Kranton certainly think so. In a recent London lecture at the LSE, Akerlof explains how this interest arose:...more>>

Frederic Mishkin: Estimating Potential Output

This is a nice summary of how economists measure the economy's maximum sustainable level of output...more>>