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Uncertain Inflation and Price-Level Rules

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Nearly all economists believe that the sole cause of long-run inflation is excessive money growth. In analyzing the economy, it has long been standard practice to employ models in which only unexpected variations in the quantity of money affect real activities and decisions, while anticipated variations affect only the price level. This property is known as neutrality. If inflation comes from money, and money is neutral, there may be little to gain by pursuing policies that reduce inflation.

Nearly all economists believe that the sole cause of long-run inflation is excessive money growth. In analyzing the economy, it has long been standard practice to employ models in which only unexpected variations in the quantity of money affect real activities and decisions, while anticipated variations affect only the price level. This property is known as neutrality. If inflation comes from money, and money is neutral, there may be little to gain by pursuing policies that reduce inflation.


Suggested citation: Hallman, Jeffrey J., 1992. "Uncertain Inflation and Price-Level Rules," Federal Reserve Bank of Cleveland, Economic Commentary, 01.15.1992.

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