April 2, 2009
Students of Global Finance
This week at the Chicago Fed, we held a high-school competition called Euro Challenge. Freshman and sophomores from area schools debated economic challenges facing Europe. You can read about it here from the Chicago Tribune. As they debated, I thought to myself (with great delight) how in the coming years there will be much attention/research dedicated to the impacts of globalized finance especially the interconnectedness of US and Europe’s financial systems.
My question to you all is pretty simple: do you think the forthcoming research will also lead us to re-examine the usefulness of our major indicators? For example, most textbooks talk up the virtues of CPI and different standard measures of inflation the Fed uses. Do you think there will be new ways to measure inflation – ways that may be more global in scope and may figure in household investments as well? Has this economic crisis illustrated that our measures of inflation are antiquated?
Post any articles or links you may have to this end…..
Posted by Cindy at April 2, 2009 9:00 PM
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To me, inflation is really an indicator of the increases in the quantity of goods being outpaced by the circulation of money. Personally I like the idea of measuring credit creation and change in asset prices as a measure of inflation, since in terms of the private sector those are the principle drivers. As far as the global economy, inflation seems to no longer be a primary indicator of an overheating economy. With outsourcing, consumer prices were kept lower, so that while credit creation and asset appreciation were occurring rapidly, consumer inflation was delayed. Ironically, it appears that the inflation has caught up with us since the MBS's had to be purchased in order to thaw debt markets.
Posted by: little David at May 3, 2009 4:22 AM
Thanks for your comments David -- I think you're onto something -- measures of credit and asset price levels!
Posted by: Cindy at May 8, 2009 12:28 AM
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