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July 27, 2007
International monetary economics
Two apparently contrasting claims:
"Since lowering import barriers typically exerts a downward pressure on prices, evolving trade liberalisation represents a structural break from the inflation forecasting perspective." - Aron & Muellbauer
"Inflation isn't transmitted via spores in the air. It's a monetary phenomenon, and as such, starts and ends on native shores." - Caroline Baum
I believe Mark Thoma succeeds in reconciling them:
[W]hether or not the movement of prices from one level to another in response to shocks should be called inflation is a matter of definition, some monetary economists reserve the term inflation for a continual run-up in the price level, not a one-time change to a new level, but whatever such movements in prices are called there's still a role for central banks to play in response to shocks that cause short-run movements in the price level.
Posted by Dingel at July 27, 2007 05:41 PM