Index-Linking and Inflation

C. G. Fane

National Institute Economic Review, 1974, vol. 70, 40-45

Abstract: Money is held to economise on the high cost of conducting transactions in a barter economy, to provide a ‘precautionary’ reserve in case of unforeseen expenses and for speculative reasons, such as bearish expectations about shares or government securities. But if conventional money changes in value rapidly it ceases to serve all these purposes. In these circumstances it may become more convenient to conduct future transactions in terms of index-linked contracts which have the effect of changing the unit of account into a given basket of goods by specifying that future payments in terms of nominal pounds are to be scaled up or down by an amount which depends on the changes in an index of average prices.

Date: 1974
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