Use your illusion

Q&A portion with Mario Draghi during the ECB news conference yesterday —

Q: […] Are you telling the Spanish, Portuguese, Irish or even Italian people that the ECB can’t do anything else with inflation actually lower than 2%?

Draghi: Well, I am not sure I get the point, but I think I get it. First, the fact that inflation is low is not, by itself, bad; with low inflation, you can buy more stuff.  

Advice to students of economics: don’t begin your essay on inflation with the claim “with low inflation, you can buy more stuff,” even if cited to Draghi, M, 2013.

UPDATE: More from Paul Krugman.

3 thoughts on “Use your illusion

  1. It is just scary Draghi would say anything like that. Euro monetary policy remains insanely tight and we are surely heading for deflation.

    Maybe he should have an introduction in AS/AD?

  2. In theory with a wage/price spiral also wages are inflated so you can buy exactly the same quantity of stuff.
    Unless you own financial assets but have no job.

    Class bias anyone?

  3. His intended meaning is clear: “Ceteris paribus, you can buy more stuff with lower inflation than with higher inflation”.
    And that’s true. OK, it’s not very useful as a guideline for setting monetary policy. But hey, he’s speaking as a political actor. In that context, it’s pretty good as an instant reply. It’s true, and it’s a clear message. I wish more European political actors could speak the truth clearly..

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