清华大学宏观经济学Chapter 5

Y
Y
Normal economic growth requires a certain
amount of money supply growth to facilitate the growth in transactions.
Money growth in excess of this amount leads
Russia
5
0 -5 -10
Cyprus China
0
10
20
30
40
50
Money supply growth
(percent)
U.S. inflation and money growth,
1960–2012
14%
% change from 12 mos. earlier
12% 10% 8% 6% 4% 2%
M2 growth rate
inflation rate
0% 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
U.S. inflation and money growth,
1960–2012
14%
% change from 12 mos. earlier
to their incomes (k is large), money changes hands infrequently (V is small).
CHAPTER 5
Inflation
10
Back to the quantity theory of money
starts with quantity equation assumes V is constant & exogenous: V V
nominal GDP (P Y ).
Real GDP is determined by the economy’s
supplies of K and L and the production function (Chap. 3).
The price level is
P = (nominal GDP)/(real GDP).
CHAPTER 5
Inflation
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Confronting the quantity theory with data
The quantity theory of money implies:
1. Countries with higher money growth rates
should have higher inflation rates.
Then, quantity equation becomes:
M V P Y
CHAPTER 5
Inflation
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The quantity theory of money, cont.
M V P Y
How the price level is determined:
With V constant, the money supply determines
CHAPTER 5
Inflation
9
Money demand and the quantity equation
money demand: quantity equation:
(M/P )d = kY
MV=PY
The connection between them: k = 1/V When people hold lots of money relative
It is an identity:
it holds by definition of the variables.
CHAPTER 5
Inflation
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Money demand and the quantity equation
M/P = real money balances, the purchasing
markets clear
Applies to the long run
1
U.S. inflation and its trend,
1960–2012
12%
% change from 12 mos. earlier
10%
% change in GDP deflator
8%
6%
4%
2%
0% 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
The result from the preceding slide:
Solve this result for :

M
P
P
P
M
P

Y
Y

M
M

Y
Y
CHAPTER 5
Inflation
14
The quantity theory of money, cont.

M
M
M
M

V
V

P
P

Y
Y
The quantity theory of money assumes
V is constant, so
CHAPTER 5
V
V
= 0.
13
Inflation
The quantity theory of money, cont.
denotes the inflation rate:
to inflation.
CHAPTER 5
Inflation
15
The quantity theory of money, cont.

M
M

Y
Y
Y/Y depends on growth in the factors of production and on technological progress (all of which we take as given, for now). Hence, the quantity theory predicts a one-for-one relation between changes in the money growth rate and changes in the inflation rate.
P Y V M
P Y = value of output
CHAPTER 5
Inflation
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The quantity equation
The quantity equation
MV = PY follows from the preceding definition of velocity.
CHAPTER 5
Inflation
12
The quantity theory of money, cont.
Recall from Chapter 2:
The growth rate of a product equals the sum of the growth rates.
The quantity equation in growth rates:
12% 10% 8% 6% 4% 2%
Inflation and money growth have the same long-run trends, as the quantity theory predicts.
0% 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
CHAPTER 5
Inflation
17
International data on inflation and money growth
40 35
30
Zambia Belarus
Inflation rate
25
(percent)
Iraq Serbia
Turkey Suriname
20 15 10
Malta Mexico U.S.
The inflation tax:
Printing money to raise revenue causes inflation. Inflation is like a tax on people who hold money.
CHAPTER 5
Inflation
21
Inflation and interest rates
U.S. inflation and its trend,
1960–2012
12%
% change from 12 mos. earlier
10%
8%
long-run trend
6%
4%
2%
0% 1960 1965 1970 1975 1980 1985 1990 1995 2wk.baidu.com00 2005 2010
The quantity theory of money
A simple theory linking the inflation rate to the
growth rate of the money supply.
Begins with the concept of velocity…
Nominal interest rate, i
not adjusted for inflation
Seigniorage
To spend more without raising taxes or selling
bonds, the govt can print money.
The ―revenue‖ raised from printing money
is called seigniorage (pronounced SEEN-your-idge).
2. The long-run trend in a country’s inflation rate
should be similar to the long-run trend in the country’s money growth rate.
Are the data consistent with these implications?
power of the money supply.
A simple money demand function:
(M/P )d = kY where k = how much money people wish to hold for each dollar of income. (k is exogenous)
Chapter 5 Inflation: Its Causes, Effects, and Social Costs
CHAPTER 5
Inflation
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IN THIS CHAPTER, YOU WILL LEARN:
The classical theory of inflation causes effects social costs ―Classical‖ – assumes prices are flexible &
example: In 2012, $500 billion in transactions money supply = $100 billion The average dollar is used in five transactions
in 2012 So, velocity = 5
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Inflation
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Velocity
basic concept:
the rate at which money circulates
definition: the number of times the average
dollar bill changes hands in a given time period
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Inflation
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Velocity, cont.
This suggests the following definition:
T V M
where
V = velocity
T = value of all transactions M = money supply
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Inflation
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Velocity, cont.
Use nominal GDP as a proxy for total
transactions. Then,
where
P Y = price of output = quantity of output (GDP deflator) (real GDP) (nominal GDP)