Indexed Units of Account: Theory and Assessment of Historical Experience

Robert Shiller

No 1171, Cowles Foundation Discussion Papers from Cowles Foundation for Research in Economics, Yale University

Abstract: An indexed unit of account is a money analogue, used to express prices; the unit's purchasing power is defined by an index. Indexed units of account are not true money in that they are not used as a medium of exchange. The first successful indexed unit of account, the Unidad de Fomento (UF) has been used in Chile since 1967, and has been copied in Colombia, Ecuador, Mexico, and Uruguay. The reasons for creating such units are discussed from the standpoint of monetary theory. The experience with such units in Chile is discussed. It is argued that important practical problems in implementing indexation are solved by creating such indexed units of account. The author advocates creating such units in other countries, even countries with relatively low rates of inflation such as the United States, and argues that an alternative definition of the units, relating the units to measures of income, may also be advantageous. Ideally, such indexed units of account might someday be "monetized," i.e., institutions such as debit cards may be devised to allow the units to be used for all transactions, so that the role of conventional money might be reduced to clearing-house functions only.

Keywords: Unidad de Fomento; money of account; ghost money; imaginary money; indexation; monetary theory; escalator clause; cost of living allowance; inflation; consumer price index; personal income; wage; salary; social security; pension; overlapping generations; Chile (search for similar items in EconPapers)
Pages: 28 pages
Date: 1998-02
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

Published in F. Lefort, K. Schmidt-Hebbel, and N. Loayza (eds.), Indexation, Inflation and Monetary Policy, Vol. 2, Central Bank of Chile, 2002, pp. 105-134

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Related works:
Chapter: Indexed Units of Account: Theory and Assessment of Historical Experience (2002)
Working Paper: Indexed Units of Account: Theory and Assessment of Historical Experience (1998)
Working Paper: Indexed Units of Account: Theory and Assessment of Historical Experience (1998)
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