warnings and contraindications
Argentina has had throughout its history long periods of inflation high and, at the moment, one of the countries with the highest rate of growth of world prices. In the next post I will try to address this issue, believing that it has become a major economic challenges our country.
The causes as well as the consequences of sustained growth in the general level of prices are a topic of constant (and inconclusive) debate, both in academia and government. Inhibits the complexity of the problem, I think, the ability to fully embrace, in one fell swoop, without the risk of ridicule or just be trivial. Of the many ways you could address this issue believe that the simplest, but also the most cowardly, is trying to offer a small glimpse into some of the leading edges of it and leave in any case, that the reader attempt to delineate the fuzzy image of the painting only by those short strokes. The vision will necessarily be partial and incomplete. Noblesse oblige: my vision of the problem is, if anything, biased and incomplete.
A couple of months now, and in response to a post of Finance , many bloggers got into a interesting discussion on the possibility for the "inflation tax" to be a tax. To avoid this kind of debate, I will dedicate this post to the (tedious) task of making precise clarifications on the definitions we use. As a bonus, the end is a comment on what I believe is the error Musgrave (a cheap shot if I did not say it now, but hopefully that will generate enough attention to reach the last lines).
The attached final something like a pauper rather mathematical appendix, which attempts to clarify some questions about definitions (I know slightly forgiven for dawn service.)
Preludiando
Money is a strange object: future promise, the desire to keep it arises indirectly as a derived demand. For decades, economists know that without rigidities in the exchange (the interactions with the "dark forces of time" or the clearest, between individuals) money would have no reason to exist. In other words, money makes possible interactions that would otherwise not be carried out. "If you iron my shirts, it is because another human being, depending on your options, which suits me just suits me. The essence of the exchange is precisely that each of the parties leaves the satisfying their own needs, better suited because it indirectly through exchange "Depablos disclosed. The very basis of a complex economy (in the number of goods) and decentralized (in terms of multiple decision agents involved in it) force the emergence of a payment ( Howitt and Clower (1999) ).
The money provides a liquidity facility, as stated, allowing agents to transact. Another nice metaphor to help understand the essence of the phenomenon behind the existence of money is to think that it could be replaced by a giant grocer account, which computes all our daily transactions with all other economic agents (a short version of the argument can be found in Leijonhufvud (1998) and more elaborate in Kocherlakota (1998) ). Money is an evil device, combination of individuals, goods, time and space. But above all, a promise of future ownership of a property, to be effective, accurate back in time. If there were no problems in exchanging the currency would be replaced by any other asset with positive returns. Money has, therefore, a cost, as a force to give up performance.
Three definitions, two constraints and an error
What is the cost of money?
Buiter (2009) performs three definitions, which I believe are necessary to give a precise answer to this question (which discrete-time use). The first corresponds to the nominal expenditure incurred by individuals, in present value terms, to maintain an asset that pays no interest, and is known as the "Central Bank Income"
IBC (t) = R (t) / (1 + R (t)) M (t-1)
Intuitively, the lost "weight" between money and bonds is the nominal interest rate. Since the loss occurs in the second period (is denominated in pesos of the post), it must be discounted. Now, in order to accumulate money, individuals must give up costs. The accumulation of stocks rated by the private sector is what is commonly known as seigniorage:
S (t) = M (t)-M (t-1)
When this accumulation of assets is considered in real terms, we can see that seigniorage has two components:
s (t) = m (t)-m (t-1) + π (t) / (1 + π (t)) m (t-1)
The first component corresponds to the resources transferred by the private sector by increasing holdings of real balances, while the second component is conventionally known as the "inflation tax"
ii (t) = π (t) / (1 + π (t)) m (t-1)
As can be seen, whenever there is inflation, the private sector resources should resign holdings real balances. In other words, the inflation tax is negative real returns on holdings of money. As an economy, nothing is lost, the conservation law should tell us that the resources from the inflation tax is income from any of the other actors in the economy and (later delve into this) the direct recipient in this case is the Central Bank . The error Musgrave's part to assume the absence of the inflation tax based on the absence of central bank transfers to the Treasury. The reallocation of resources that exists independently of whether or not they turned themselves.
Another important point (about which there was much discussion) is the possibility of a scenario where there is no inflation seigniorage, which is perfectly feasible for an economy to absorb higher volumes real balances. The post-devaluation Argentina is a good example of a phenomenon remonetization, although this, along with some other issues, will be for later.
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