Articles
Inflation is a rise in the general level of prices of goods and services in an economy over a period of time.
The term "inflation" once referred to increases in the money supply (monetary inflation); however, economic debates about
the relationship between money supply and price levels have led to its primary use today in describing price inflation.
Inflation can also be described as a decline in the real value of money — a loss of purchasing power in the medium of exchange
which is also the monetary unit of account. When the general price level rises, each unit of currency buys fewer goods and services.
A chief measure of general price-level inflation is the general inflation rate, which is the percentage change in a general price
index, normally the Consumer Price Index, over time.
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Leasing or Contract Hire is inflation friendly. As the costs go up over five years, you still pay the same rate as when you began the lease, therefore making your dollar stretch farther.
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Books
The New Keynesian framework has emerged as the workhorse for the analysis of monetary policy and its implications for inflation, economic fluctuations, and welfare. It is the backbone of the new generation of medium-scale models under development at major central banks and international policy institutions, and provides the theoretical underpinnings of the inflation stability-oriented strategies adopted by most central banks throughout the industrialized world. This graduate-level textbook provides an introduction to the New Keynesian framework and its applications to monetary policy.
Using a canonical version of the New Keynesian model as a reference framework, Jordi Galí explores issues pertaining to the design of monetary policy, including the determination of the optimal monetary policy and the desirability of simple policy rules. He analyzes several extensions of the baseline model, allowing for cost-push shocks, nominal wage rigidities, and open economy factors. In each case, the implications for monetary policy are addressed, with a special emphasis on the desirability of inflation targeting policies.
- The most up-to-date and accessible introduction to the New Keynesian framework available
- Uses a single benchmark model throughout
- Concise and easy to use
- Includes exercises
- An ideal resource for graduate students, researchers, and market analysts
Friends
Inflation is a rise in the general level of prices of goods and services in an economy over a period of time. The term "inflation" once referred to increases in the money supply (monetary inflation); however, economic debates about the relationship between money supply and price levels have led to its primary use today in describing price inflation. Inflation can also be described as a decline in the real value of money — a loss of purchasing power in the medium of exchange which is also the monetary unit of account. When the general price level rises, each unit of currency buys fewer goods and services. A chief measure of general price-level inflation is the general inflation rate, which is the percentage change in a general price index, normally the Consumer Price Index, over time.
Read more ...
Leasing or Contract Hire is inflation friendly. As the costs go up over five years, you still pay the same rate as when you began the lease, therefore making your dollar stretch farther.
Read more ...
The New Keynesian framework has emerged as the workhorse for the analysis of monetary policy and its implications for inflation, economic fluctuations, and welfare. It is the backbone of the new generation of medium-scale models under development at major central banks and international policy institutions, and provides the theoretical underpinnings of the inflation stability-oriented strategies adopted by most central banks throughout the industrialized world. This graduate-level textbook provides an introduction to the New Keynesian framework and its applications to monetary policy.
Using a canonical version of the New Keynesian model as a reference framework, Jordi Galí explores issues pertaining to the design of monetary policy, including the determination of the optimal monetary policy and the desirability of simple policy rules. He analyzes several extensions of the baseline model, allowing for cost-push shocks, nominal wage rigidities, and open economy factors. In each case, the implications for monetary policy are addressed, with a special emphasis on the desirability of inflation targeting policies.
- The most up-to-date and accessible introduction to the New Keynesian framework available
- Uses a single benchmark model throughout
- Concise and easy to use
- Includes exercises
- An ideal resource for graduate students, researchers, and market analysts
Residential Real Estate Investment Value - How Is It Calculated?
by Roberto Belly
The United States Department of Labor Bureau of Labor Statistics measures the Rent of primary residence (rent) and Owners' equivalent rent of primary residence (rental equivalence). They make this distinction because a house has both a consumptive purpose and an investment purpose. The consumptive value is measured by rent or rental equivalence. There is legitimate financial reason to pay more than the rental equivalence price. The normal rate of house appreciation, not the unsustainable kind witnessed during the Great Housing Bubble, can provide a return on investment. The source of this added value is the leverage of mortgage financing and the hedge against inflation obtained through a fixed-rate mortgage. The investment premium, which is about 10%, is less than most people think.
The rental equivalence value is the fundamental value of real estate, and it is also its consumptive value. There is an independent investment value that can also be measured and added to the consumptive value to arrive at the maximum resale value of the property. Investment value is derived from two sources: the increase in property value through appreciation and the long-term savings over renting caused by inflation. These two components can be measured independently.
Since the return on investment generated from residential real estate occurs in the future, a discounted cashflow analysis is required to determine the net present value of the future returns. Calculating net present value sounds complex, and manually going through the calculations is quite cumbersome, but electronic spreadsheets make this an easy task.
The concept is simple: how much money would investors put money in an investment today if they knew the rate of growth and the cash value to be realized in the future. For instance, if investors put $100 in a bank earning 5% interest, they would have $105 at the end of the year. Net present value looks at the situation in reverse. If investors knew they would receive $105 at the end of the year and the market interest rate was 5%, they would be willing to pay $100 for it today. Similarly, the investment value of residential real estate is the value today of an amount of money to be received in the future either through sale or savings on rent.
Residential housing does have a cash-saving value, if financed with a fixed rate mortgage. Over time, the growth in income and rents increases the cost of housing for renters. The inflation of housing costs for renters is greatly lessened for homeowners using a fixed-rate mortgage because their housing costs are effectively frozen at the rate of their ongoing mortgage payment. Other costs, such as property taxes, insurance and maintenance do still rise with inflation, but since the mortgage payment is about two-thirds of the cost of ownership, fixing this amount provides a large benefit. Over time, the savings accruing to homeowners from a level housing payment can be quite substantial. Applying the technique of discounted cashflow analysis, this savings over time can be evaluated.
The real investment value of residential real estate is almost universally over estimated by home buyers. Many believe they will make a fortune in appreciation owning real estate. Most have no idea what properties are really worth, what investments are, and how investment premiums are calculated. These are the ones who overpaid for real estate during the Great Housing Bubble and lost a great deal of money.
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Lawrence Roberts is the author of The Great Housing Bubble: Why Did House Prices Fall? Learn more and get FREE eBooks at: http://www.thegreathousingbubble.com/ Read the author's daily dispatches at The Irvine Housing Blog: http://www.irvinehousingblog.com/ Visit Residential Real Estate Investment Value - How Is It Calculated?.
