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But its all the same mechanisms ~ demand and supply in flex price markets and price leaders increasing prices in fix price markets. No matter what is driving inflation, it always has to go via those mechanisms.

OK, I'll buy that. But that doesn't answer the question of what causes fixprice actors to change their prices, or how prices are determined in the flexprice sector in an economy that includes a fixprice sector as well.

If you have a pet theory that has to always be the cause, it gets tricky how to squeeze the right answer out of the data, but if you are actually looking for which of the causes are stronger at a particular point in time, you tell that from the data the same way you sort out any other cause in historical time.

Except you can't, unless you have an idea about what different sorts of causes inflation can have, and how they should show up in the data, if they are actually there. There is no theory-neutral way to decompose a data set.

So, I'd like to understand as many possible theories of inflation as I can, and what they would predict about the data if they were true.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Nov 19th, 2010 at 10:56:49 PM EST
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Splitting it between fix price and flex price impulses helps, especially timelining them separately.

If its on fix price, you of course have to look for stable, falling or rising mark-ups, stable mark-ups indicating cost driven inflation, rising mark-ups indicating growing market power, volatile mark-ups indicating product/input price spirals.

If its flex price, you look for the effects that neoclassical imagine to be the whole picture: shortages, buffer stocks rising or falling, static sales volume indicating demand driven inflation, falling sales volume indicating supply driven inflation.

The problem with trying to sort out causes of inflation independent of understanding what is going on in the economy is that monetary flows are information simplifiers ~ that's the power of monetary production economies for complex industrial economies, after all ~ so that you lose some of the explanatory leverage that you have when looking directly at the industrial activity that is reflected in different rates of product price inflation in different sectors of the economy.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Fri Nov 19th, 2010 at 11:17:29 PM EST
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