Inflation will take 18 to 24 months to come down


“In a period between 18 and 24 months we will end the inflation,” said Javier Milei, pointing out that before that the prices will not go down “because this is the result of the disaster created by this Government” and it is also confirmed that they are. work “in all mechanisms.” to stop issuing money.”

Milei’s vision was already expressed in the networks months ago, pointing out that “inflation is always a monetary phenomenon created by an excess money supply” but that “monetary policy operates in a lag of 18/24 months.” “. From these statements it can be noted that Milei thinks that his “chainsaw” plan will balance public accounts by preventing the need to issue, a fact that will only create price stability within a and half or two years.

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The lag theory of monetary policy is based on the idea that time passes between the currency being launched into circulation and its full effect on prices. This delay is not only due to the time it takes money to carry out many buying and selling operations (speed of circulation, in technical jargon), but also due to inflationary economies, economic agents expect non good policies of excessive monetary expansion. .


So, when a government decides to end broadcasting, agents continue to promote it for a while as if it never happened. Only after the lack of currency creates a high cost in terms of economic activity coexisting with inflation (“depreflation”, according to Friedman, wrongly called “stagflation” by Milei), economic agents adapt also in their characteristics corresponding to the new monetary austerity policy, ending the marking of prices and income.

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This theory has been challenged within the orthodox paradigm itself by rational expectations monetarists. They point out that if the government credibly announces its fiscal and monetary austerity plan, agents will immediately change their behavior, reducing the productive costs of stabilization and the delays in monetary policy. Therefore, some libertarians are enthusiastic about inflation falling faster than Milei suggests.

But these theoretical assumptions are science fiction for the Argentine economy, where inflation is not monetary, but inertial, and where there is no clear evidence of lags in monetary policy. In this regard, all academic attempts to estimate monetary policy lags have failed and it is no coincidence that those who talk about them avoid mentioning any research that supports their statements.

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The theory of lags is a lie launched by Federico Sturzenegger after his inflation goals crashed into reality a few months after taking office at the Central Bank during the Macri era. “Our models tell us that fiscal policy has lags of about six months, so the inflation we see is the product of the very strong expansion of aggregates that we experienced in the second half of 2015 and there are effect that will expand during the year. first semester,” said Sturzenegger in a presentation before the National Academy of Economic Sciences in March 2016. Needless to say, “his models” were never presented so that the community of economists can evaluate their validity.