Bryan Caplan  

Inflation Regimes? Where?

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My former student Eli Dourado has ably performed the legwork on my first-cut test of Arnold's inflation regimes theory.  Pay special attention to the last graph, limited to countries with mean inflation below 10%.  There isn't the slightest sign of clustering.  Instead, there's a smooth continuum, as common sense and the old-school quantity theory of money predict.

Yes, it's only a first-cut test.  Countries could toggle regimes, and the average of the toggling might create the illusion of a continuum.  But the first-cut test still puts the ball back in Arnold's court.  Where's the second-cut test that actually supports Arnold's theory?


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paul writes:

All I see is "developed" countries with inflation under 5% then Bretton Woods collapse a 10 year adjustment period then inflation under 5%. "non-developed" countries have volatile funding methods.

how is the price level determined anyway? Do economists have a good theory about that?

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