WOW! I’ll be darned! I learn something every day!
There’s a section in Williamson’s Macroeconomics about this. I don’t have my book right in front of me, but it’s known as the Friedman-Lucas Money Surprise model. Long story short, the mechanism works slightly differently from the inflation caused by open printing of money, but the result is the same.
Is the UK/Iceland hair pulling episode over now?
I really want to visit Iceland, but I don’t particularly want to be arrested on Cod terrorism charges the minute I step into a bar, either.
Seconded. God, I love the Dope!
As long as your name isn’t Brown or Darling, you’ll be well recieved.
But I’m pretty sure they’ve sorted most of the mess out. The assets will be sold off and the rest is to be covered 50% by Iceland and 50% by the UK/Netherlands.
Does this phenomena really happen on the retail level? I kind of can’t see store owners raising their prices within a day to exploit a surge in the popularity of their products. I’d say they’d rather keep their prices low to maintain customer loyalty and raise them when faced with increased wholesale costs and/or overhead costs that they’re forced to pass along. But when their suppliers start getting increased orders, it puts them in a position to bargain for higher wholesale prices–and the same holds true for their suppliers.
So I think when demand gets passed along to a place where actual haggling take place does it generate inflation, which then gets passed back up the food chain.
What haggling? You believe there is no “haggling” at the retail level? The haggling goes on every minute of the day. Every single buy / not buy decision by a customer and every decision to set a price by a retailer is a haggling decision. The aggregate of all those decisions are the market at work and it is continuous.
The whole premise of this proposal is a fallacy. Suppose doing X (increasing spendable cash) has a good effect Y (raises demand) and a bad effect Z (raises inflation). The fallacy is based on the wishful thinking that we can do just a little of X so that Y would be measurable but Z would be inmesurable. In other words, let’s ignore Z as too small to count and let’s inflate Y as worth measuring and worth while.
Likewise it is a fallacy to think raising or lowering prices by very little will have an effect on inflation but no effect in buying decisions.
Cool, thanks!
I should be ok then - last person who called me Darling was pregnant 20 seconds later.
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