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Simulations Illustrate Flaw In Inflation Models, Peter L. D'Antonio Ph.D.
Simulations Illustrate Flaw In Inflation Models, Peter L. D'Antonio Ph.D.
Faculty Works: Business (1973-2022)
This study questions the basic assumption of standard inflation models that there are only two forces driving price changes - underlying inflation and short-term noise. Specifically, the paper analyzes the distributions of individual price changes to shed light on an apparent contradiction: individual price changes are extremely dispersed, while measured inflation, the aggregate of individual price changes, remains relatively steady. Monte Carlo simulations demonstrate that the standard inflation model is inconsistent with this observation. The author reintroduces a new inflation model that explicitly accounts for the possibility of a third price-change driver - long-term sector-specific forces. Simulations show that the …
Wide Dispersion Of Price Changes Limits The Accuracy Of Measured Inflation, Peter L. D'Antonio Ph.D.
Wide Dispersion Of Price Changes Limits The Accuracy Of Measured Inflation, Peter L. D'Antonio Ph.D.
Faculty Works: Business (1973-2022)
It is generally accepted in the economics literature that there is an underlying inflation rate that raises the general price level and simultaneously degrades the value of money. This common force purportedly influences prices of all goods and services in the economy. Price changes of individual items can vary based on short-term, idiosyncratic fluctuations, but they are assumed to gravitate to the dominant underlying inflation rate over time. All government and private inflation measurements are based on this concept of inflation. This paper takes a sectoral approach to assess this basic assumption of a common force pulling all individual prices. …
Wide Dispersion Of Price Changes Limits The Accuracy Of Measured Inflation, Peter L. D'Antonio Ph.D.
Wide Dispersion Of Price Changes Limits The Accuracy Of Measured Inflation, Peter L. D'Antonio Ph.D.
Faculty Works: Business (1973-2022)
It is generally accepted in the economics literature that there is an underlying inflation rate that raises the general price level and simultaneously degrades the value of money. This common force purportedly influences prices of all goods and services in the economy. Price changes of individual items can vary based on short-term, idiosyncratic fluctuations, but they are assumed to gravitate to the dominant underlying inflation rate over time. All government and private inflation measurements are based on this concept of inflation. This paper takes a sectoral approach to assess this basic assumption of a common force pulling all individual prices. …