2021/12/26 by Wolfgang Kuhle, Kuhle, Wolfgang
Economics, Econometrics and Finance · #Economic Theory and Policy #Economic theories and models #FOS: Economics and business #Monetary Policy and Economic Impact #Theoretical Economics (econ.TH)
paper · pdf · doi:10.48550/arxiv.2112.14697
openalex publication_date 2021/12/26 · openalex created_date 2022/11/30 · openalex updated_date 2026/07/28
We study a game where households convert paper assets, such as money, into consumption goods, to preempt inflation. The game features a unique equilibrium with high (low) inflation, if money supply is high (low). For intermediate levels of money supply, there exist multiple equilibria with either high or low inflation. Equilibria with moderate inflation, however, do not exist, and can thus not be targeted by a central bank. That is, depending on agents' equilibrium play, money supply is always either too high or too low for moderate inflation. We also show that inflation rates of long-lived goods, such as houses, cars, expensive watches, furniture, or paintings, are a leading indicator for broader, economy wide, inflation.