Freely Determined Versus Regulated Prices: Implications for the Link Between Money and Inflation
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AbstractThis paper explores the importance for the measured link between money and inflation of measuring inflation from indices that include prices that, by virtue of being regulated, are unlikely to respond systematically to the forces of supply and demand. 1 The inclusion of regulated prices for such items as property taxes, telephone and postal charges, vehicle registration, and public transportation means that even if supply and demand are systematically related to money, the measured overall rate of inflation may not be. Certainly, it would seem reasonable to believe that the nature of the setting and subsequent maintenance of regulated prices would result in them responding differently market forces that might themselves be affected by money, than would relatively unfettered prices such as those of many food items, furniture, insurance, household repairs, and automobile servicing. Indeed, it would seem reasonable to believe that the link between money and freely determined market prices would be more systematic than that between money and regulated prices, a belief that our results strongly confirm.
*Wiley: author accepted manuscript can be posted 2 years after official publication date. Must acknowledge source, link to publisher version and include following statement This is the accepted version of the following article: [Dexter, A.S., Levi, M.D. and Nault, B.R., "Freely Determined Versus Regulated Prices: Implications for the Link Between Money and Inflation, "Journal of Money, Credit and Banking, 25, 2 (May 1993), 222-231. ], which has been published in final form at [http://www.jstor.org/stable/2077838 ]. Policy: http://exchanges.wiley.com/authors/self-archiving_361.html. Article deposited according to publisher's policy 05/25/2015.