macroeconomics
College of Management,HUST
CHAPTER EIGHT
Theory of Inflation
CHAPTER 8 Theory of Inflation
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slide 12
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(percent,
logarithmic
scale)
1,000
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100
10
1
0.1
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Angola
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Bulgaria
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Canada
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Democratic Repub
of Congo
CHAPTER 8 Theory of Inflation
slide 13
Y
3nD
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0246
Growth in money supply (percent)
81012
8
6
4
2
0
-2
-4
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1910s
1940s
1980s
1960s
1950s
1990s
1930s
1920s
1870s
1890s
1880s
1900s
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rate
(percent)
CHAPTER 8 Theory of Inflation
slide 14
-2
3
8
13
18
23
28
33
38
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%
M
Y
3n
q M29é
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CHAPTER 8 Theory of Inflation
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0
2
4
6
8
10
12
14
16
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%
p
e
r
year
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CHAPTER 8 Theory of Inflation
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16
14
12
10
8
6
4
2
0
-2
Nominal
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1975 1980 1985 1990 20001995
CHAPTER 8 Theory of Inflation
slide 20
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13
18
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10
1
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Return
CHAPTER 8 Theory of Inflation
slide 22
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CHAPTER 8 Theory of Inflation
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CHAPTER 8 Theory of Inflation
slide 26
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CHAPTER 8 Theory of Inflation
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CHAPTER 8 Theory of Inflation
slide 29
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CHAPTER 8 Theory of Inflation
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t
gr
o
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1983-85
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1989-90
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slide 41
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End
College of Management,HUST
CHAPTER EIGHT
Theory of Inflation
CHAPTER 8 Theory of Inflation
slide 1
D 1?
?Y
3n￥ ? ?
ey
?Y
?'
?“ ?,——L
!Nì μ??i
O
g? b
??¨?é
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CHAPTER 8 Theory of Inflation
slide 2
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I
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;
g? (
Y
3n￥
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3n
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CHAPTER 8 Theory of Inflation
slide 3
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CHAPTER 8 Theory of Inflation
slide 4
?SY
3n t
]
-2
1
4
7
10
13
16
19
22
25
1985 1987 1989 1991 1993 1995 1997 1999 2001
%
M
Y
3n
q Y
3n
q t
]
CHAPTER 8 Theory of Inflation
slide 5
6 4 Y
3n t
]
0
2
4
6
8
10
12
14
16
1960 1965 1970 1975 1980 1985 1990 1995 2000
% p
e
r
y
e
a
r
inflation rate inflation rate trend
CHAPTER 8 Theory of Inflation
slide 6
;
?B?|Y
3n
qD
;ó9é
q ó" ?￥ ?
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CHAPTER 8 Theory of Inflation
slide 7
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CHAPTER 8 Theory of Inflation
slide 8
@Y
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P¨
l GDP T1?^9N′
yN
PY
V
M
×
=
?
P áNì GDP
üh"
Y á
L= GDP
P ×Y áN′
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;ó
CHAPTER 8 Theory of Inflation
slide 9
;
?
Z?
T
. × 7 1 × :
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Dw? V?
B?￥9é
q??ò?9é
q￥9
?¨9é
q ?×
Z?
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;
L? 71è
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MV PY
MV PY
+=+
CHAPTER 8 Theory of Inflation
slide 10
;
MPY
MPY
=+
-B?
T V[?
P
P
=π
¨ π V
UY
3n
q
π
=?
MY
MY
3¤ π
CHAPTER 8 Theory of Inflation
slide 11
;
π
=?
MY
MY
??è￥ü69é1 pB?
￥
;ó
9é ?
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yN
;
?y
;9é
qM?
DY
3n
qM?-Wi BB?￥1
",
CHAPTER 8 Theory of Inflation
slide 12
Y
3n
;9é￥S=
Inflation rate
(percent,
logarithmic
scale)
1,000
10,000
100
10
1
0.1
Money supply growth (percent,logarithmic scale)
0.1 1 10 100 1,000 10,000
Nicaragua
Angola
Brazil
Bulgaria
Georgia
Kuwait
USA
Japan
Canada
Germany
Oman
Democratic Repub
of Congo
CHAPTER 8 Theory of Inflation
slide 13
Y
3nD
;9é￥
S
0246
Growth in money supply (percent)
81012
8
6
4
2
0
-2
-4
1970s
1910s
1940s
1980s
1960s
1950s
1990s
1930s
1920s
1870s
1890s
1880s
1900s
Inflation
rate
(percent)
CHAPTER 8 Theory of Inflation
slide 14
-2
3
8
13
18
23
28
33
38
1991 1993 1995 1997 1999 2001
%
M
Y
3n
q M29é
q Y
3n
q t
] M29é
q t
]
?S￥Y
3nD
;9é
CHAPTER 8 Theory of Inflation
slide 15
0
2
4
6
8
10
12
14
16
1960 1965 1970 1975 1980 1985 1990 1995 2000
%
p
e
r
year
inflation rate M2 growth rate inflation rate trend M2 trend growth rate
6 4 ￥Y
3nD
;9é
CHAPTER 8 Theory of Inflation
slide 16
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￥
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CHAPTER 8 Theory of Inflation
slide 17
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CHAPTER 8 Theory of Inflation
slide 18
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CHAPTER 8 Theory of Inflation
slide 19
6 4 Y
3n
l ?
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16
14
12
10
8
6
4
2
0
-2
Nominal
interest rate
Inflation
rate
1950 1955 1960 1965 1970
Year
1975 1980 1985 1990 20001995
CHAPTER 8 Theory of Inflation
slide 20
?SY
3n
l ?
q
-2
3
8
13
18
23
1991 1993 1995 1997 1999 2001
Y
3n
q
l ?
q
Year
Percent
CHAPTER 8 Theory of Inflation
slide 21
òSY
3n
l ?
q
Inflation rate (percent,logarithmic scale)
Nominal
interest rate
(percent,
logarithmic
scale)
100
10
1
1 10 100 1000
Kenya
Kazakhstan
Armenia
Nigeria
Uruguay
United Kingdom
United States
Singapore
Germany
Japan
France
Italy
Return
CHAPTER 8 Theory of Inflation
slide 22
;3 pf
I
nnòr?
()(,)
d
MP LiY=
(,)
e
L r Y+= π
?? |
ì %?
^??μ
;O ?
H
e
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3n
q
^8"￥
f ?
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D
;3 pM1￥
l ?
qü
^
S π
F
CHAPTER 8 Theory of Inflation
slide 23
;
g? (
(,)
e
M
Lr Y
P
=+π
L=
;ó
L=
;3 p
CHAPTER 8 Theory of Inflation
slide 24
P ?QM
(,)
e
M
Lr Y
P
=+π
??ó?￥ S
:
B O E π
F
,￥M?|?á 1 M]?￥M
? ——? ?
;
o
￥B
"
CHAPTER 8 Theory of Inflation
slide 25
P ?Qπ
F
?é
ù7y
|
ì?ú9??Y
3n
q
' π
F
π
?
ù?
? |
ì¤?μ1?￥ha π
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6úyN π
F
6ú
?'
P .
àμ?
3M?Nì 1 G ?
s?
Y
D P O U J O V F E…
CHAPTER 8 Theory of Inflation
slide 26
P ?Qπ
F
(,)
e
M
Lr Y
P
=+π
??ó?￥ S
:
B O E ,
(the Fisher effect)
e
iπ↑?↑
( )
d
MP?↓
()
to make fall
to re-establish eq'm
PMP?↑
Return
CHAPTER 8 Theory of Inflation
slide 27
Y
3n1
I
1?z$
?Yè￥p $
Y
3nh
L=y'
??]?
ly'%???4?
ù
=
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é
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L= y'o? ??￥ó ??￥H=á
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? idNì
￡
üY
3n
q
? I
n ?/
…
CHAPTER 8 Theory of Inflation
slide 28
S
ü (l
Hy' $ 1 *
0
2
4
6
8
10
12
14
16
18
1964 1968 1972 1976 1980 1984 1988 1992 1996 2000
$
pe
r
hour
0
25
50
75
100
125
150
175
200
225
250
CP
I
(
1983=
100)
Average
hourly
earnings
Hourly earnings
in 2001 dollars
Consumer
Price Index
0
2
4
6
8
10
12
14
16
18
1964 1968 1972 1976 1980 1984 1988 1992 1996 2000
$
pe
r
hour
0
25
50
75
100
125
150
175
200
225
250
CP
I
(
1983=
100)
Average
hourly
earnings
Hourly earnings
in 2001 dollars
Consumer
Price Index
CHAPTER 8 Theory of Inflation
slide 29
?S
ü (l
Hy' $ 1 *
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1
1.1
1.2
1.3
1.4
1.5
1978 1982 1986 1990 1994 1998 2002
í
100
130
160
190
220
250
280
310
340
ü (l
Hy'
CPI
CHAPTER 8 Theory of Inflation
slide 30
Y
3n￥
?'
…s1
?
?Y
3n V?
ù
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e w
?
ü￥
￥
l??
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ù?]|?á?F?'
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￥
? ???￥9F
CHAPTER 8 Theory of Inflation
slide 31
?
ùY
3n￥?'
w?'
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Y
3n
￥7h
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;?-
{ ?￥?'D?ZL
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L
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￥
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N1 ??4 |l-Cá
CHAPTER 8 Theory of Inflation
slide 32
?
ùY
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?1 ?
?
?N?
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cV
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CHAPTER 8 Theory of Inflation
slide 33
?
ùY
3n￥?'
MNì
e w
?
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N1M÷N
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c
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3n ??
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3
e w …
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￥?￥?ü6 b
CHAPTER 8 Theory of Inflation
slide 34
?
ùY
3n￥?'
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ü￥
￥
l??
? è ? '' ?¤
￥
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D
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L
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L='' ?¤1
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￥
? ? ?Q
6 h"?@
CHAPTER 8 Theory of Inflation
slide 35
?
ùY
3n￥?'
R￥?ZL
?Y
3n
P |
ì
4[? ?
?]
H
ù
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l
l ?
??
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CHAPTER 8 Theory of Inflation
slide 36
??
ù￥Y
3n￥?'
?i s
￥
??
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ù~ {??
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3n π
F
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3n
π
F
5BZ
sm7
6BZ
s
è ? O | O ? |
?T π π
F
5 J?π
J?
?T π π
F
CHAPTER 8 Theory of Inflation
slide 37
??
ù￥Y
3n￥?'
9F? ???
?Y
3n?ú5
÷ M a÷
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3??￥ ?i s
￥
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￥ |
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CHAPTER 8 Theory of Inflation
slide 38
Y
3n￥B?z)
?D5
L=y'/??
ly'
/?
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3n
P¤?¨??
ly'ü V[
P
L=y' tí (y'
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ly'ü V[
P
L=y' tí (y'
￡
ü
?yN?￥Y
3n? ?
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g?
￥???
Return
CHAPTER 8 Theory of Inflation
slide 39
?
Y
3n
??l π ≥
? -
?
￥
μ￥Y
3n{ ?￥?'?|
M¤
v
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;|
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>
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e?
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o
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CHAPTER 8 Theory of Inflation
slide 40
?
Y
3n￥ey
??
Y
3n
^??
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9é
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ó
DNì
￡
ü|
6
? ?T??ó
D￥
V yüμ V
?á?
Y
3n
1
10
100
1000
10000
pe
r
c
e
n
t
gr
o
w
t
h
Israel
1983-85
Poland
1989-90
Brazil
1987-94
Argentina
1988-90
Peru
1988-90
Nicaragua
1987-91
Bolivia
1984-85
inflation growth of money supply
í
M ?￥?
Y
3n
slide 41
CHAPTER 8 Theory of Inflation
slide 42
1
I
1???á?
Y
3n
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￥
÷ O ?
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ó
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Y
3n￥ZEe?
T???ó
D
?ü6
Ll??ü1 p??
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<
￥9?
^e m￥???
Return
CHAPTER 8 Theory of Inflation
slide 43
?=sE
L=M
[
Lt?ê
MNì
?
? á
?
L=y' [á9
￥
l
HyT￥
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l ?
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B ￥0
￥
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CHAPTER 8 Theory of Inflation
slide 44
?=sE
? ?=sE ?
?? us
L=
lM
i?"
lM
??Y
L=M
?
;??
;ó￥M???Y
L=
M
? ü6
Ll?+Y
^ù?é
ùù5
H
;??
^¤í?? ?￥
Return
CHAPTER 8 Theory of Inflation
slide 45
'cl2
;
? L
!
@Y
×?
? 2
;9é %?Y
3n
q
l ?
q
?
L= ?
q Y
3n
q
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l ?
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3nμBB?￥M?1"
?
^?μ
;￥?'
CHAPTER 8 Theory of Inflation
slide 46
'cl2
Y
3n￥}N
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3n
w?'
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￥
lMNì
e w
n
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sYn?Y￥
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L=M
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;
g? ( %?Nì
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μ
lM
End
