A Two-Agent Model of Inflation
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A Two-Agent Model of Inflation
Credit and Capital Markets – Kredit und Kapital, Vol. 51 (2018), Iss. 3 : pp. 367–388
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Frank Browne, Trinity College Dublin, College Green, Dublin 2
David Cronin, Central Bank of Ireland, P.O. Box 559, Dublin 1, Ireland
Abstract
Models of inflation usually have monetary policy affecting the economy through either an interest rate channel or a monetary/credit quantity channel but not through both simultaneously. It is argued here that policy is transmitted via two distinct types of agents – those that are and that are not liquidity-constrained. The implication is that both interest rate and monetary channels must be seen as complementary, joint indicators of inflation and must both be incorporated into models of inflation. A formal representation of price level determination and behaviour in this two-agent framework is provided and evaluated econometrically using US data.
Table of Contents
| Section Title | Page | Action | Price |
|---|---|---|---|
| Frank Browne / David Cronin: A Two-Agent Model of Inflation | 1 |