Re: Interest Rates, Inflation, Exchange Rates and Credit inBull And Bear Ma...

["Alan G. Isaac" <aisaac@xxxxxxxxxxxx>]

On Sun, 3 Dec 2000, schulte-baeuminghaus wrote:
> The history of links between interest rates, inflation and exchange
> rates since 1969 suggests that inflation is stimulated by higher
> interest rates

This is really getting too silly.
Let us use some basic economic intuition please.
But for those who suffer from either lack of economic
training, a failure of intuition, or a willful need
to be contrarian, there is plenty of data available.
Here is a simple experiment: get the fed funds
rate and the cpi from FRED.
 http://www.stls.frb.org/fred/index.html
Construct a series representing the gap between
the fed funds rate and the annualized inflation
rate: call it gapm.
The `m' is to remind you it is monthly data.
Since this is monthly data and monetary policy will
make its effects known only as time passes, construct
a moving average of gapm over a year or two or three
(whatever you prefer). Call this gapm_av.
Now regress the inflation rate on gapm_av.
As both orthodox and heterodox economic theory predict,
we find that the Fed's belief that it can squash inflation
by raising rates is perfectly well founded.

Alan Isaac