01 January 2008

2007/08 Rybczynski Prize Essay

Global Inflation – The Ghost in the Machine?

Marco Annunziata, Bayerische Hypo-und Vereinsbank AG
Tullia Bucco, Bayerische Hypo-und Vereinsbank AG
David Stroppa, Bayerische Hypo-und Vereinsbank AG
Marco Valli, Bayerische Hypo-und Vereinsbank AG

Market measures of inflation expectations have risen somewhat, but still lag substantially behind the tone of the debate. This flags the risk that investors’ inflation expectations might suddenly flare up, with a disruptive impact on financial markets. In this paper we try to assess
whether fears of inflation are justified, and whether rising commodity prices are indeed the main danger. We also ask whether we should be worried that two years of monetary tightening by the major central banks have failed to slow liquidity growth; whether there
really is a risk of wage-price spirals, and whether inflation expectations matter.

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