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Thursday, 29 December 2011

Strengths of CIPPA compared to indexation

Strengths of CIPPA compared to indexation

1.       CIPPA splits non-monetary items in variable and constant items which makes CIPPA acceptable at all levels of inflation and deflation.

2.       CIPPA recognizes that it is the stable measuring unit assumption doing the damage and not inflation. Brazil (from 1964 to 1994) and Chile (from 1967 to 2008) implemented financial capital maintenance in units of constant purchasing power and then went back to HCA because of a lack of understanding that it is not inflation that is causing the erosion of real value in constant items, but, in fact, the stable measuring unit assumption.

3.       CIPPA is implemented at all levels of inflation and deflation – not only during hyperinflation like indexation.



Strengths of indexation compared to CIPPA

1.       Indexation is generally accepted during hyperinflation.

2.       It is generally accepted that there are only two basic items in the economy, namely, monetary and non-monetary items. Indexation is similar to CIPPA only during hyperinflation excluding (a) the split of non-monetary items in variable and constant items and (b) the understanding of the effect of the stable measuring unit assumption.


Nicolaas Smith

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