TITLE:
A Kind of Neither Keynesian Nor Neoclassical Model (3): The Decision of Inflation
AUTHORS:
Ming’an Zhan, Zhan Zhan
KEYWORDS:
Inflation, Interest Rate, Quantity Equation, Phase Diagram
JOURNAL NAME:
Open Access Library Journal,
Vol.4 No.1,
January
18,
2017
ABSTRACT: The difficulty of inflation theory is to explain the fluctuations of the price level in short-term. First, we use the relationship between price and money in the traditional quantity equation to derive the inflation equation that can explain changes of the price level in the long-term and short-term. Then, by analyzing the phase diagram of the single variable and the complex variable in the inflation equation, we find that the fundamental reason of the periodic change of the short-term price is the periodic change of the real interest rate. Because fluctuations of the inflation rate and interest rate are the same in phase, so there is no difference in the business cycle. Finally, this paper analyzes the rise and fall of core price under the influence of money and real interest rate respectively. It lays the foundation for further discussion of the relationship between inflation and unemployment in Phillips curve.