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
Copyright (c) 2005-2011 Nicolaas J Smith. All rights reserved. No reproduction without permission.
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