16 September 2013

An Interesting Question

I can think of at least two mechanisms here.  First, when economic growth is high and wages are rising rapidly, there may be less public opposition to inflation.
Second, whenever there is lots of growth, markets are forward-looking and the supply of credit outraces the growth of the moment, a’la Long and Plosser (1983).  This leads to immediate inflationary pressures.

Alternatively, it could just be the case that inflation is nothing more than a monetary phenomenon that causes a bubble mechanism which in turn provides the illusion of growth.  But there’s no way any intelligent economist would overlook this possibility, right?