Bryan Caplan  

Another Inflation Bet

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Arthur Breitman and I have hammered out the following inflation bet:
If the 12 month change of the CPI-U as reported by the BLS is greater than 5% for any sliding window between today and December 2015 in monthly increments, I pay Arthur $100.  Otherwise, he pays me $3.

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COMMENTS (11 to date)
John Hall writes:

"12 month PERCENT change"

Dan S writes:

I think it was good as it was. The numbers are given in percents, so saying the percent change is no greater than 5% would be redundant. Right?

James Oswald writes:

I don't even think inflation is going to be that high, but I would be nervous betting 100:3 odds.

Arthur B. writes:

My understanding is that the Bryan Caplan looked at TIPS spreads to get an estimate of future inflation. But this spread only reflects the expected level of inflation and says nothing of volatility. In taking this bet, I'm buying CPI volatility.

BZ writes:

Does anyone know Dr. Caplans analysis of the likely outcome should the fed stop paying interest on all those record reserves? Has he written about it somewhere that can be pointed out?

I would certainly appreciate it.

As it is, Dr. Caplan's bet announcements on inflation always bury the lede, since the content of his thought it missing. :(

Jason Collins writes:

@James Oswald. The reputational factor of announcing it on the blog (with later posts on the result) forms part of Bryan's pay-off calculations.

Kevin writes:

Bryan's writing call options on TIPS over treasuries. I think these bets are more interesting when he's making a market that's not already there, but it is nice to see the strength of Bryan's convictions. And Arthur's, I suppose, although dropping 3 bucks on a spread call is not terribly informative.

Joe Cushing writes:

Do you see it going over 5% in the next 4 years? It seems like we should have another event like the 70s sometime in the next decade.

Arthur B. writes:

@Kevin, I'm willing to put more money behind it if you're a taker.

Mark Bahner writes:
I don't even think inflation is going to be that high, but I would be nervous betting 100:3 odds.

Yeah, those seem like pretty spectacular odds for only 5% per year inflation.

John Fast writes:

Bryan: Would you be willing to scale the bet? I'll bet $300 against $10,000 on the same terms.

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