JEL Code: E520

Karl-Friedrich Israel; Gunther Schnabl

Abstract

Since the 1980s inflationary pressures seem to materialize overproportionately outside of the sectors of consumer goods and services. We combine the Harmonized Index of Consumer Prices with indices for asset prices, such as stocks and real estate, as well as the costs of public goods to develop alternative inflation measures in Germany since the introduction of the euro. Real economic growth as well as median wage developments are reexamined in light of the alternative inflation estimates. Both turn out to be negative over the past decade in the most pessimistic scenarios.

Keywords: assets prices, costs of public goods, Germany, harmonized index of consumer prices, hidden inflation, inflation, inflation targeting, Monetary policy, real economic growth, real wages.

JEL Codes: E310, E520, E580, O110.

Erschienen in

CESifo Working Paper No. 8583.

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Gunther Schnabl

Abstract

This chapter analyzes the evolution and effects of central bank crisis management since the mid-1980s based on a Hayek-Mises-Wicksell overinvestment framework. It is shown that given that the traditional transmission mechanism between monetary policy and consumer price inflation has collapsed, asymmetric monetary policy crisis management implies a convergence of interest rates toward zero and a gradual expansion of central bank balance sheets. From a Wicksell-Hayek-Mises perspective, asymmetric central bank crisis management has contributed to financial market bubbles, decreasing marginal efficiency of investment, increasing income inequality, and declining growth dynamics. The economic policy implication is a slow but decisive exit from ultra-expansionary monetary policies.

Keywords: Economic Theory, Economics and Finance, Financial Economics, Macroeconomics and Monetary Economics, Mathematical Models.

JEL Codes: E520, E580, E630, F420.

Erschienen in

The Oxford Handbook of the Economics of Central Banking.

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