Does cost accountancy provide a good framework for analysing inflation?

Tim Congdon ()

Chapter 9 in Money and Inflation at the Time of Covid, 2025, pp 225-239 from Edward Elgar Publishing

Abstract: The validity of the author's inflation forecasts in 2020 turned on the quantity theory of money and the evidence of a money growth explosion. The forecasts were therefore monetary in nature. However, central banks’ most common response to the inflation overshoots of 2022 has, however, been to identify and emphasize non-monetary sources. These sources have commonly been so-called “supply-side shocks”, analysed in a framework (of “cost-accountancy”) in which movements in price levels are explained by changes in their cost components (wages, commodity prices, profit margins). Central bank analyses typically ignore money, as measured by any aggregate. The chapter criticizes the cost-accountancy approach to inflation research, including a model developed by Ben Bernanke and Olivier Blanchard; it notes that the cost-accountancy approach cannot explain asset price inflation or international differences in inflation rates.

Keywords: Inflationary shocks; Bernanke–Blanchard model; Forecasting model; Supply shock; Stop-go cycles; Boom-bust; Asset prices (search for similar items in EconPapers)
Date: 2025
ISBN: 9781035328963
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