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Monday, 14 October 2013

Congratulations to Shiller, Fama and Hansen for sharing the 2013 Nobel Prize in Economic Sciences


Eugene F. Fama, Robert J. Shiller and Lars Peter Hansen shared the 2013 Nobel Prize in Economic Sciences for their research on how the market prices of assets such as stocks move. (Bloomberg)
Robert Shiller has also done very important research regarding government capital inflation-indexed bonds. These bonds are inflation-adjusted daily in terms of a country specific Daily CPI. A Daily CPI is a 2-, 3- or 4-month lagged, daily interpolation of the monthly published CPI. 


These government capital inflation-indexed bonds are currently the principle means of maintaining the real value of monetary items constant over time during inflation and deflation in the USD 2.4 trillion (2013) global market for these sovereign bonds.

The Daily CPI is used as the Daily Index under Capital Maintenance in Units of Constant Purchasing Power during low and high inflation and deflation.

The Daily CPI is always available in advance. It can be available up to a month and a half in advance. There are never any surprises with the Daily CPI. The Daily CPI is daily inflation always known in advance.

The use of the Daily CPI was suggested to the IASB to be used in the future IFRS regarding Financial Reporting in High Inflationary Economies.

Inflation-indexing all monetary items would remove the total effect of inflation (not actual inflation) from the entire economy. Inflation only affects the real value of monetary items. Inflation has no effect on the real value of non-monetary items. The same holds true for deflation. 

Nicolaas Smith Copyright (c) 2005-2013 Nicolaas J Smith. All rights reserved. No reproduction without permission.