Kenneth Rogoff Embraces Inflation

Right here. I wouldn’t ordinarily just pass along a link you can find elsewhere, but I can’t help remarking that that makes two former chief economists of the IMF to take this position. That was Simon’s old job; his article on the topic is here. Of course, you are free to keep whatever opinion you may have about the IMF and its chief economists.

(Thanks to Mark Thoma for flagging this.)

3 thoughts on “Kenneth Rogoff Embraces Inflation

  1. That brings us back to the inflation option. In addition to tempering debt problems, a short burst of moderate inflation would reduce the real (inflation-adjusted) value of residential real estate, making it easier for that market to stabilise. Absent significant inflation, nominal house prices probably need to fall another 15% in the US, and more in Spain, the UK and many other countries. If inflation rises, nominal house prices don’t need to fall as much.

    Isn’t this voodoo counting on the wealth effect more than the actual value of money? Or is that the point?

  2. I think there is some voodoo hear, but it counteracts one form of irrational behavior by homeowners. Homeowners are very bad at recognizing that the actual value of their houses has fallen and selling at a market price. Instead, they put their homes on the market at more than they can sell for, which slows adjustment. Inflation has the benefit in this context of making the prices that people have in their heads realistic market prices and unsticking the market.

    There is also a very real effect, which is that inflation will reduce the real value of the mortgage debt that is such a weight on so many households.

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