From: Allin Cottrell (cottrell@wfu.edu)
Date: Wed Nov 17 2004 - 23:23:34 EST
In response to my comment, >> That is the context of "special indexes" of the sort you have >> mentioned. Some would claim that sensitive commodity prices serve >> as a leading indicator for the CPI (with a lot of error and noise, >> of course) -- and to that extent they can serve as a guideline for a > monetary policy that aims to maintain CPI inflation within a target band. Rakesh wrote: > The CPI is a joke, politically manipulable and meaningless in its > aggregate nature. I wouldn't say it's a joke. It is manipulable to some degree, but meaningful in its aggregate nature. For example for workers and capitalists negotiating wages the CPI, however imperfect, is much more relevant than the prices of just a few selected commodities -- particularly those that enter nobody's consumption. > Greenspan is using a basket of commodities in which gold features > prominently as an end in itself. He is trying to ensure that the > dollar depreciates vis a vis that basket in a very gradual and > controlled way. As a thought experiment, consider what would happen if a serious gap opened between the time path of the CPI and that of the gold-basket, that is, if stabilizing the price of the gold-basket meant destabilizing the CPI. Do you think Greenspan would go for that? I very much doubt it. Allin.
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