Inflation: Roles, Targeting & Dynamics

Inflation is the rise in the amount of money circulating in a given economy over a period of time resulting in a general rise in prices. It is measured as the percentage rate of change of a price index. Mainstream economists overwhelmingly agree that high rates of inflation are caused by high rates of growth of the money supply. Views on the factors that determine moderate rates of inflation, especially in the short run, are more varied: changes in inflation are sometimes attributed mostly to changes in real demand for goods and services or fluctuations in available supplies (i.e. changes in scarcity), and sometimes to changes in the supply or demand for money. In the mid-twentieth century, two camps disagreed strongly on the main causes of inflation (at moderate rates): the monetarists argued that money supply dominated all other factors in determining inflation, while Keynesians argued that real demand was often more important than changes in the money supply. A variety of inflation measures are in use, because there are many different price indices, designed to measure different sets of prices that affect different people. Two widely known indices for which inflation rates are commonly reported are the Consumer Price Index (CPI), which measures nominal consumer prices, and the GDP deflator, which measures the nominal prices of goods and services produced by a given country or region. This book presents the latest research in the field.