Inflation Regimes? Where?
By Bryan Caplan
My former student Eli Dourado has ably performed the legwork on my first-cut test of Arnold’s inflation regimes theory. Pay special attention to the last graph, limited to countries with mean inflation below 10%. There isn’t the slightest sign of clustering. Instead, there’s a smooth continuum, as common sense and the old-school quantity theory of money predict.
Yes, it’s only a first-cut test. Countries could toggle regimes, and the average of the toggling might create the illusion of a continuum. But the first-cut test still puts the ball back in Arnold’s court. Where’s the second-cut test that actually supports Arnold’s theory?