Principles of Economics- Mankiw (5th) 630

Principles of Economics- Mankiw (5th) 630 - 650 PA R T T E...

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650 PART TEN MONEY AND PRICES IN THE LONG RUN the short run. Later in this book we will examine the reasons for short-run mone- tary nonneutrality in order to enhance our understanding of the causes and costs of inflation. A S WE HAVE SEEN , UNEXPECTED CHANGES in the price level redistribute wealth among debtors and creditors. This would no longer be true if debt con- tracts were written in real, rather than nominal, terms. In 1997 the U.S. Trea- sury started issuing bonds with a return indexed to the price level. In the following article, written a few months before the policy was imple- mented, two prominent economists discuss the merits of this policy. Inflation Fighters for the Long Term B Y J OHN Y. C AMPBELL AND R OBERT J. S HILLER Treasury Secretary Robert Rubin an- nounced on Thursday that the govern- ment plans to issue inflation-indexed bonds—that is, bonds whose interest and principal payments are adjusted upward for inflation, guaranteeing their real purchasing power in the future. This is a historic moment. Econo-
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