Money and Inflation in a Macroeconomic Model with Indexed Bonds

This book starts with three central questions that have preoccupied monetary economists since the emergence of paper money in the 18th century: Why is there inflation? Why is inflation costly? Why is inflation beneficial? William Coleman observes tongue-in-cheek: “There is inflation, but no one is quite sure how. Inflation is usually bad, but no one really knows why. Inflation is sometimes good, but no one has a confident answer when.” The main strength of this book is the coherent analytic framework that is constructed step-by-step in a clear and systematic way in the first nine chapters. Following a practice that has become almost universal in contemporary macroeconomics, the model is based on explicit microeconomic foundations. Still, it is appropriate to review this book in a history of thought journal because the author is inspired by the work of Hicks (1939/46), Kaldor (1970), Patinkin (1955/65), Samuelson (1947, pp. 117­122) and other mid-20th century economists. Although side-stepping the contributions of real business cycle macroeconomists and new-Keynesian macroeconomists, William Coleman arrives at an analytic framework that is close to a modern dynamic macroeconomic model with microeconomic foundations. That it is possible to construct a modern macroeconomic model building directly upon the work of famous mid-20th century economists indicates a degree of continuity in macroeconomic thought that is generally not appreciated.