中级宏观经济学沈凌 11 money 2 inflation

1、C h a p t e r 1 1Inflation, Money Growth, and Interest RatesMacroeconomicsChapter 111Cross-Country Data on Inflation and Money GrowthMs= P L(Y, i) Key equation: Two possible reasons of inflation: Decrease of real demand for money Increase of money supplyMacroeconomicsChapter 112Cross-Country Data on

2、 Inflation and Money Growth Inflation rates and money growth rates for 82 countries from 1960 to 2000. We measure the price level, P, by the consumer price index (CPI).We use the CPI, rather than the GDP deflator, because of data availability.MacroeconomicsChapter 113MacroeconomicsChapter 114Macroec

3、onomicsChapter 115MacroeconomicsChapter 116Cross-Country Data on Inflation and Money Growth Highlights The inflation rate was greater than 0 for all countries from 1960 to 2000 The growth rate of nominal currency was greater than 0 for all countries from 1960 to 2000. There is a broad cross-sectiona

4、l range for the inflation rates and the growth rates of money.MacroeconomicsChapter 117Cross-Country Data on Inflation and Money Growth Highlights The median inflation rate from 1960 to 2000 was 8.3% per year, with 30countries exceeding 10%. For the growth rate of nominal currency, the median was 11

5、.6% per year, with 50 above 10%MacroeconomicsChapter 118Cross-Country Data on Inflation and Money Growth Highlights In most countries, the growth rate of nominal currency, M, exceeded the growth rate of prices. For a country that has a high inflation rate in one period to have a high inflation rate

6、in another period. Strong positive association between the inflation rate and the growth rate of nominal currency.MacroeconomicsChapter 119Cross-Country Data on Inflation and Money GrowthMacroeconomicsChapter 1110Cross-Country Data on Inflation and Money Growth One lesson from the cross-country data

7、 is that, to understand inflation, we have to include money growth as a central part of the analysis. Milton Friedmansfamous dictum:“Inflation is always andeverywhere a monetary phenomenon.”MacroeconomicsChapter 1111Inflation and Interest Rates Actual and Expected Inflation Let be the inflation rate

8、. The inflation rate from year 1 to year 2, 1, is the ratio of the change in the price level to the initial price level. 1 1= ( P2 P1)/ P1=P1/ P1MacroeconomicsChapter 1112Inflation and Interest Rates Actual and Expected Inflation 1 1 1 P2= ( P2 P1)/ P1=P1/ P1 P1 = P2 P1= ( 1 +1) P1MacroeconomicsChap

9、ter 1113Inflation and Interest Rates Actual and Expected Inflation Since the future is unknown, households have to form forecasts or expectations of inflation. Denote by e1 the expectation of the inflation rate 1. The actual inflation rate, 1, will usually deviate from its expectation, e1, and the f

10、orecast erroror unexpected inflationwill be nonzero.MacroeconomicsChapter 1114Inflation and Interest Rates Actual and Expected Inflation Households try to keep the errors as small as possible. Therefore, they use available information on past inflation and other variables to avoid systematic mistake

11、s. Expectations formed this way are calledrational expectations.MacroeconomicsChapter 1115Inflation and Interest Rates Real and Nominal Interest Rates The dollar value of assets held as bonds rises over the year by the factor 1 + i1. The interest rate i1 is the dollar or nominal interest rate becaus

12、e i1 determines the change over time in the nominal value of assets held as bonds.MacroeconomicsChapter 1116Inflation and Interest RatesMacroeconomicsChapter 1117Inflation and Interest Rates Real and Nominal Interest Rates The Real interest rate to be the rate at which the real value of assets held

13、as bonds changes over time. dollar assets in year2 =( dollar assets in year1)(1+ i1) P2 = P1 ( 1 + 1)MacroeconomicsChapter 1118Inflation and Interest Rates Real and Nominal Interest Rates (dollar assets in year2/P2 )=(dollar assets in year1/P1) (1+i1)/(1+1) real assets in year2 =(real assets in year

14、1) (1+i1)/(1+1)MacroeconomicsChapter 1119Inflation and Interest Rates Real and Nominal Interest Rates Since the real interest rate, denoted by r1, is the rate at which assets held as bonds change in real value: (1+r1) = (1+i1)/(1+1)MacroeconomicsChapter 1120Inflation and Interest Rates Real and Nomi

15、nal Interest Rates r1 = i1 1 r11 the cross term, r1 1, which tends to be small; real interest rate= nominal interest rate inflation rate r1 = i1 1MacroeconomicsChapter 1121Inflation and Interest Rates Fisher Equation i = r + Fisher EffectiMacroeconomicsChapter 1122Inflation and Interest Rates The Re

16、al Interest Rate and Intertemporal Substitution When the inflation rate, , is not zero, it is the real interest rate, r, rather than the nominal rate, i, that matters for intertemporal substitution.MacroeconomicsChapter 1123Inflation and Interest Rates Actual and Expected Real Interest Rates The exp

17、ected inflation rate determines the expected real interest rate, retret= it et expected real interest rate= nominal interest rate expected inflation rateMacroeconomicsChapter 1124Inflation and Interest Rates Measuring expected inflation Ask a sample of people about their expectations. Use the hypoth

18、esis of rational expectations, which says that expectations correspond to optimal forecasts, given the available information. Then use statistical techniques to gauge these optimal forecasts. Use market data to infer expectations of inflationMacroeconomicsChapter 1125Inflation and Interest Rates Mea

19、suring expected inflation Livingston Survey Ask a sample of people（50 economists） about their expectations.MacroeconomicsChapter 1126Inflation and Interest RatesMacroeconomicsChapter 1127Inflation and Interest RatesMacroeconomicsChapter 1128Inflation and Interest Rates Measuring expected inflation I

20、ndexed bonds, real interest rates, and expected inflation rates Indexed government bonds, which adjust nominal payouts of interest and principal for changes in consumer-price indexes. These bonds guarantee the real interest rate over the maturity of each issue.MacroeconomicsChapter 1129Inflation and

21、 Interest RatesMacroeconomicsChapter 1130Inflation and Interest RatesMacroeconomicsChapter 1131Inflation and Interest Rates Interest Rates on Money real interest rate on money=nominal interest rate on money t real interest rate on money=tMacroeconomicsChapter 1132Inflation in the Equilibrium Busines

22、s- Cycle Model Goals To see how inflation affects our conclusions about the determination of real variables, including real GDP, consumption and investment, quantities of labor and capital services, the real wage rate, and the real rental price. To understand the causes of inflation.MacroeconomicsCh

23、apter 1133Inflation in the Equilibrium Business- Cycle Model Assume fully anticipated inflation, so that the inflation rate, t, equals the expected rate, et. Extend the equilibrium business- cycle model to allow for money growth.MacroeconomicsChapter 1134Inflation in the Equilibrium Business- Cycle

24、Model Assume the government prints new currency and gives it to people. They receive a transfer paymentfrom the government. The payments are lump-sum transfers, meaning that the amount received is independent of how much the household consumes and works, how much money the household holds, and so on

25、.MacroeconomicsChapter 1135Inflation in the Equilibrium Business- Cycle Model Intertemporal-Substitution Effects The expected real interest rate, ret , has intertemporal-substitution effects on consumption and labor supply. Therefore, for given it, a change in t will have these intertemporal- substi

26、tution effects.MacroeconomicsChapter 1136Inflation in the Equilibrium Business- Cycle Model Bonds and Capital i = (R/P) () Replace the nominal interest rate on bonds, i, by the real rate, r, r = (R/P) ()MacroeconomicsChapter 1137Inflation in the Equilibrium Business- Cycle Model Interest Rates and t

27、he Demand for Money The tradeoff between earning assets and holding money is ( i ) () = i Therefore, the nominal interest rate, i, still determines the cost of holding money rather than earning assets. We can therefore still describe real money demand by the functionMd / P = L( Y, i )MacroeconomicsC

28、hapter 1138Inflation in the Equilibrium Business- Cycle Model Interest Rates and the Demand for Money It is the real interest rate, r, that has intertemporal-substitution effects on consumption and labor supply. It is the nominal interest, i, that influences the real demand for money, Md/P.Macroecon

29、omicsChapter 1139Inflation in the Equilibrium Business- Cycle ModelMacroeconomicsChapter 1140Inflation in the Equilibrium Business- Cycle ModelMacroeconomicsChapter 1141Inflation in the Equilibrium Business- Cycle Model Inflation and the Real Economy A change in the inflation rate, , does not shift

30、the demand or supply curve for capital services. Therefore, ( R/P) * and (K) * do not change. A change in the inflation rate, , does not shift the demand or supply curve for labor. Therefore, ( w/ P) * and L* do not change.MacroeconomicsChapter 1142Inflation in the Equilibrium Business- Cycle Model

31、Inflation and the Real Economy Real GDP, Y, is determined by the production functionY= A F( K, L) We conclude that a change in does not influence real GDP, Y.MacroeconomicsChapter 1143Inflation in the Equilibrium Business- Cycle Model Inflation and the Real Economy The real rental price, R/P, and th

32、e capital utilization rate, , determine the real rate of return from owning capital,(R/P) (), and therefore the realinterest rate, r,r = ( R/ P) () . Since R/P and are unchanged, we find that a change in the inflation rate, , does not affect the real interest rate, r.MacroeconomicsChapter 1144Inflat

33、ion in the Equilibrium Business- Cycle Model Inflation and the Real Economy If we continue to ignore income effects from inflation, , we know that C does not change. Since Y is fixed, we conclude that Idoes not change.MacroeconomicsChapter 1145Inflation in the Equilibrium Business- Cycle ModelWe hav

34、e found that the time paths of money growth and inflation do not affect a group of real variables.This group comprises real GDP, Y; inputs of labor and capital services, L and K; consumption and investment, C and I; the real wage rate, w/P; the real rental price, R/P; and the real interest rate, r.T

35、he neutrality of money apply, as an approximation, to the entire path of money growth.MacroeconomicsChapter 1146Inflation in the Equilibrium Business- Cycle Model Money Growth, Inflation, and the Nominal Interest Rate Analyze how the time path of the nominal quantity of money, Mt, determines the tim

36、e path of the price level, Pt, and, hence, the inflation rate,t. We also assume for now that Yt and rtare constant over time.MacroeconomicsChapter 1147Inflation in the Equilibrium Business- Cycle Model Money Growth, Inflation, and the Nominal Interest Rate Mt =Mt+1Mt t = Mt/MtMt+1= (1+t)Mt t = Pt/ P

37、t t = (Pt+1Pt)/PtPt+1= (1+t)PtMacroeconomicsChapter 1148Inflation in the Equilibrium Business- Cycle Model Money Growth, Inflation, and the Nominal Interest Rate Show that When Mt grows steadily at the rate , the price level, Pt, will also grow steadily at the rate . = MacroeconomicsChapter 1149Infl

38、ation in the Equilibrium Business- Cycle Model Money Growth, Inflation, and the Nominal Interest Rate The real quantity of money demanded,L(Y, i), does not vary over time. real GDP, Y, is fixed. i = r+ i = r+ Since we assumed that r and are fixed, i is unchanging. Since Y and i are fixed, we have ve

39、rified that the real quantity of money demanded, L(Y, i), is unchanging.MacroeconomicsChapter 1150Inflation in the Equilibrium Business- Cycle Model Money Growth, Inflation, and the Nominal Interest Rate The level of real money demanded, L(Y, i), equals the unchanging level of real money balances, M

40、t/Pt . L(Y, i) and Mt/Pt are both fixed over time. Therefore, if the levels of the two variables are equal in the current year, year 1,they will remain equal in everyfuture year.MacroeconomicsChapter 1151Inflation in the Equilibrium Business- Cycle Model Money Growth, Inflation, and the Nominal Inte

41、rest Rate Determination of price level: P1 = M1 / L( Y, i) t, is the constant = .MacroeconomicsChapter 1152Inflation in the Equilibrium Business- Cycle Model Money Growth, Inflation, and the Nominal Interest Rate The inflation rate, , equals the unchanging growth rate of money, . Real money balances

42、, Mt/Pt, are fixed over time. The nominal interest rate, i, equals r + , where r is the unchanging real interest rate.MacroeconomicsChapter 1153Inflation in the Equilibrium Business- Cycle Model Money Growth, Inflation, and the Nominal Interest Rate The real quantity of money demanded, L(Y, i), is f

43、ixed over time, where Y is the unchanging real GDP. P1 = M1 / L( Y, i)MacroeconomicsChapter 1154Inflation in the Equilibrium Business- Cycle Model A Trend in the Real Demand for Money Assume that L(Y, i) grows steadily at the constant rate . This growth might reflect long-term growth of real GDPMacr

44、oeconomicsChapter 1155Inflation in the Equilibrium Business- Cycle Model A Trend in the Real Demand for Money Real money balances, Mt/Pt, increase because of growth in the numerator, Mt, at the rate , but decrease because of growth in the denominator, Pt, at the rate . growth rate of Mt/ Pt = MacroeconomicsChapter 1156Inflation in the Equilibrium Business- Cycle Model A Trend in the Real Demand for Money If L(Y, i) grows at rate , Mt/Pt must also grow at rate . = = MacroeconomicsChap