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?
READER COMMENTS
paul
Aug 30 2010 at 1:11pm
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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