tag:blogger.com,1999:blog-6476989946886057900.post8974418915043668708..comments2019-12-19T15:25:37.909-08:00Comments on <small> <i> the </i> </small> Mechanical Money <small> <i> blog </i> </small>: A Cash-In-Advance Model Comparing Consumers and SuppliersRoger Sparkshttp://www.blogger.com/profile/01734503500078064208noreply@blogger.comBlogger2125tag:blogger.com,1999:blog-6476989946886057900.post-59474864090777420812016-03-01T05:57:27.637-08:002016-03-01T05:57:27.637-08:00Thanks for looking at this post and commenting.
Y...Thanks for looking at this post and commenting.<br /><br />Your second equation was indeed my inspiration but I certainly did make a drastic twist to evolve into my analysis.<br /><br />In my analysis, everything is nominal. Terms Ft and Pt+1 (which are locked in relative value) would either be estimates or measured/calculated depending upon whether the observer is looking ahead or looking back.<br /><br />My goal was to find a math equation that described <i> motivation </i> . The result was that <i> two </i> equations were needed to describe the motivation of consumers and suppliers when the inflation term was present. The terms in the equations were the same for both cohorts, only the sign for the inflation term was different between cohorts.Roger Sparkshttps://www.blogger.com/profile/01734503500078064208noreply@blogger.comtag:blogger.com,1999:blog-6476989946886057900.post-47028073435860970802016-02-29T17:53:31.016-08:002016-02-29T17:53:31.016-08:00Roger,
You said: "John sets K = Rt where Rt ...Roger,<br /><br />You said: "John sets K = Rt where Rt is the current 'gross nominal interest rate' (his definition) expressed as one plus the current interest rate (example 1 + .05 = 1.05). With this assignment, John shows us how a future price can be found based on an increase attributed to interest accumulation."<br /><br />The euler equation in the basic CIA model really relates the nominal interest rate to the real interest rate. Since, by definition, R_t = (1 + r_t)(P_t+1/P_t) -- where R_t is still the gross nominal interest rate, r_t is the real interest rate, and P_t is the price level, the only real content of the second equation in post is that the real interest rate is constant at r = 1/B - 1 (B corresponds to beta in my post). This happens to be the case in the model because of a few things that are too complicated to explain in a comment, but, suffice it to say that the model does not necessarily imply that inflation is related to interest payments, just that the inflation rate will jump to whatever level is necessary (since prices are perfectly flexible).John Handleyhttps://www.blogger.com/profile/16057855086740377031noreply@blogger.com