yep, economists track many different measures of “inflation”. FRD does not even categorize them all in the same place. The Fed’s “target” is actually 2% based off PCE (PCECTPI), not CPI, and all of them have their own peculiar measurement issues. I assume by “money inflation” you mean the growth rate of the money supply. measurement of inflation is something one could write several books on and not exhaust the subject.

]]>*I always try to be careful when discussing *levels* vs growth rates (inflation is the *growth rate* of the price level), and not mix levels vs growth rates.*

Good point.

*yes, gdp goes up over time, but growth rates are usually more relevant. This is for the simple reason that the population grows about 1.5% per year (population doubles about every 45 years), so if all we did was bake bread, gdp as measured by bread output would increase 1.5% per year just to keep up. If we keep the price of bread constant at $1 then nominal gdp grows at a rate of 1.5% per year. {and i will also need to invest in more ovens too, so the oven-making industry i guess will increase at about 1.5% per year}. And applying the QTM, the money stock has to grow about 1.5% per year to keep the price level constant. Productivity tends to build on itself similarly, so the equilibrium *growth rate* of the economy is probably around 3%, ish, IMO, but thats not really known with much precision.*

OK, sure, if you want to talk about growth rates, then I will agree that higher growth in inflation tends to be associated with higher growth rates in velocity, and lower growth in inflation tends to be associated with lower growth rates in velocity.

That makes sense, because when inflation speeds up, the hot potato effect dominates and you see increased velocity.

But I should warn you that “inflation” in FRED is the CPI index, which is highly incomplete of the full picture, so a decline in the growth rate of CPI can be accompanied by an increase in the growth rate of the monetary inflation, so even though we would observe the rate of growth in inflation decreasing while velocity decreases, a decrease in the rate of growth of velocity can be accompanied by an increase in the rate of monetary inflation.

]]>I always try to be careful when discussing *levels* vs growth rates (inflation is the *growth rate* of the price level), and not mix levels vs growth rates.

yes, gdp goes up over time, but growth rates are usually more relevant. This is for the simple reason that the population grows about 1.5% per year (population doubles about every 45 years), so if all we did was bake bread, gdp as measured by bread output would increase 1.5% per year just to keep up. If we keep the price of bread constant at $1 then nominal gdp grows at a rate of 1.5% per year. {and i will also need to invest in more ovens too, so the oven-making industry i guess will increase at about 1.5% per year}. And applying the QTM, the money stock has to grow about 1.5% per year to keep the price level constant. Productivity tends to build on itself similarly, so the equilibrium *growth rate* of the economy is probably around 3%, ish, IMO, but thats not really known with much precision.

]]>That would be true if it were neutral. But monetary injections can cause much more than changes in aggregates, depending on how they are administered.

Here’s the simplest way: Print up 10 trillion dollars, divide it up into 20 million parts, and sent one part to each of the 20 million poorest American households. You will definitely cause inflation, and the money will clearly diffuse beyond those 20 million households. But in the end the % wealth increase will be much greater for the 20 million households on average than it will be for the rest of the population.

]]>When I say upward trends, I mean nominal GDP and inflation have been increasing over time, not that their rate of annual growth has been increasing.

After all, I am talking about absolute velocity decreasing, not the rate of change in velocity decreasing.

I want to compare apples with apples.

]]>and since 1980,

http://research.stlouisfed.org/fred2/graph/?g=6nO

not sure what you are looking at, but inflation and nominal GDP growth was higher in the 80s than the 90s and 00s

]]>since 2001, virtually no trend (if any, downward):

http://research.stlouisfed.org/fred2/graph/?g=6nN

*sure. inflation and nominal gdp growth have also been on a downward trend as the Fed has disinflated the economy.*

That’s false. Inflation and nominal GDP have been on upward trends since both 2001 and 1980, the time periods that velocity has been on downward trends.

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