Disequilibrium Inflation

Furukawa, Yoko (2026): Disequilibrium Inflation.

Abstract

I construct a model that examines the behavior of the inflation rate considering multiple functions of money. The model demonstrates that Taylor Rules are effective when the inflation rate moves to the same direction with regard to money as a medium of exchange and a storage of value. Under deflation, these two functions of money diverge oppositely and that leads to a liquidity trap which the economy struggles to escape.

• Item Type: MPRA Paper
• Language: English
• Keywords: inflation rate, disequilibrium, money.
• Subjects: E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E31 - Price Level ; Inflation ; Deflation; E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E43 - Interest Rates: Determination, Term Structure, and Effects; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E50 - General

References

J. Benhabib, S. Schmitt-Grohe, and M. Urube, “The Perils of Taylor Rules,” Journal of Economic Theory 96, 2001. J. Benhabib, S. Schmitt-Grohe, and M. Uribe, “Avoiding Liquidity Traps,” Journal of Political Economy 110, 2002. J. B. Taylor, “Discretion versus policy rules in practice,” Carnegie-Rochester Conf. Ser. Public Policy 39 (1993).