tag:blogger.com,1999:blog-6837159629100463303.post6485798239984024868..comments2023-06-18T01:25:08.748-07:00Comments on Information Transfer Economics: Insights from the information transfer model?Jason Smithhttp://www.blogger.com/profile/12680061127040420047noreply@blogger.comBlogger2125tag:blogger.com,1999:blog-6837159629100463303.post-73882789008786557622013-07-28T10:03:31.417-07:002013-07-28T10:03:31.417-07:00This is probably one of the reasons I use most to ...This is probably one of the reasons I use most to emphasize my doubts about the model.<br /><br />The capability to raise inflation by cutting the base arises through the same channel as many of the strange effects in macroeconomics: money is both a unit of account and a medium of exchange. In this case, money is the information destination and the unit of information in the information transfer. <br /><br />Mathematically, it comes in through the information transfer index. In normal supply and demand in this model, the information transfer index is constant because it is measured in symbols that communicate information exchange (i.e. money) and not whatever the supply and demand are actually denominated in (e.g. cell phones and humans). The index is In applying the quantity theory of money, the index becomes a function of the aggregate supply (the money supply, actually more like the LM curve in the ISLM model) and aggregate demand.<br /><br />I don't know if I have a really good intuitive reasoning for the effect though -- hence my doubts. A negative "money multiplier" is necessary to reconcile Japan and the US with a quantity theory, though. The liquidity trap ( http://en.wikipedia.org/wiki/Liquidity_trap ) explains a similar effect, but there is a key difference. Liquidity traps can happen any time. The effect here only happens when the monetary base is large relative to NGDP and the definition of "large" gets smaller as the size of the economy grows.Jason Smithhttps://www.blogger.com/profile/12680061127040420047noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-36711340594321396852013-07-27T17:06:48.249-07:002013-07-27T17:06:48.249-07:00 The idea that cutting the MB oould raise infla... The idea that cutting the MB oould raise inflation is entirely counterintuitive. How does the ITM achieve this result? Mike Saxhttps://www.blogger.com/profile/01360689916550576484noreply@blogger.com