那提西银行-全球-经济理论-什么决定了长期通胀？-20171211-5页_418kb

Flash Economics Summary: What Determines Inflation in the Long Term?

Core Content

The document explores the long-term determinants of inflation, challenging the traditional monetary theory that inflation is primarily driven by the growth of the money supply. It examines the United States and the euro zone as case studies and introduces alternative theories, including Neo-Fisherism, to explain inflation dynamics.

Main Views

1. The Monetary Theory of Long-Term Inflation is Obsolete

• The monetary theory assumes a stable relationship between money supply and nominal income, expressed as:
  $$
  \text{money supply} = m \times \text{price level} \times \text{level of real GDP}
  $$
  where $m$ is a constant.

• In the long term, real GDP equals potential GDP, so inflation is expected to be proportional to the growth of the money supply.

• However, empirical evidence from the past 20 years shows that the money supply has grown much more rapidly than the price level in both the U.S. and the euro zone. This contradicts the monetary theory and suggests that it is no longer a valid framework for understanding long-term inflation.

2. Long-Term Inflation May Be Determined by Controlled Nominal Variables

• If the monetary theory is invalid, inflation in the long term may be influenced by other controlled, exogenous nominal variables.

• These variables include:

  • Nominal wages: If wages are set exogenously, inflation may follow unit labour costs.
  • Nominal exchange rate: If the central bank controls the exchange rate, it could influence inflation.

• The document notes that in the U.S. and euro zone, the exchange rate is not directly controlled by monetary policy, making it less likely to be a primary determinant.

3. Neo-Fisherism as an Alternative Explanation

• Neo-Fisherism posits that in the long term, inflation is determined by the nominal interest rate, which is set by the central bank.

• This theory is based on the Fisher equation:
  $$
  \text{nominal interest rate} = \text{real interest rate} + \text{expected inflation}
  $$

• Under Neo-Fisherism, if the central bank controls the nominal interest rate in the medium term and the real interest rate is determined by structural factors, then inflation will be determined by the nominal interest rate in the long term.

• Charts 4A and B support this theory by showing a correlation between nominal interest rates and inflation over time.

Key Information

• Money supply growth vs. inflation: Over the past 20 years, the money supply has grown more rapidly than the price level, undermining the monetary theory of inflation.

• Controlled variables: The document emphasizes the need to identify which controlled nominal variables (such as wages or exchange rates) may determine long-term inflation.

• Neo-Fisherism: This theory challenges conventional wisdom by suggesting that the central bank's control over the nominal interest rate can influence long-term inflation.

• Policy implications: The determination of inflation in the long term is crucial for effective economic and monetary policy. Without a clear understanding of its drivers, policy decisions may be misaligned.

Conclusion

The document concludes that the monetary theory of long-term inflation is no longer valid and calls for a new theoretical framework to explain inflation. It suggests that the nominal interest rate (under Neo-Fisherism) or controlled nominal variables such as wages and exchange rates may be more relevant. The need for a robust theory of long-term inflation is stressed, as it is essential for informed economic policy-making.

Disclaimer Highlights

• The document is intended for professionals and qualified investors only.
• It is strictly confidential and must not be disclosed to third parties without consent.
• It is not a personalized investment recommendation and does not constitute financial advice.
• No liability is accepted for the use or distribution of the document.
• The views expressed are the personal opinions of the authors and may differ from those of Natixis or its affiliates.
• The document is not approved or licensed by any regulatory body in the GCC or Lebanon.