The visible hand in economics

Torres and inflation expectations

Posted on: February 20, 2008

I am a Liverpool supporter (the football club), I’m proud to admit it 🙂 . While I was reading an interview with Fernando Torres today, I ran into this gem of a line when discussing Benitez’s rotation policy:

“It is normal to rest. We players never want to, but if the manager says so, you have to. If everybody accepts that is the way forward, the atmosphere doesn’t suffer.”

This reminds me of inflation expectations. If the Reserve Bank (the manager) says that it is commited to making inflation zero (for arguments sake), then individual agents accept that the Bank will do whatever it takes to achieve that target (hiking interest rates), and inflation expectations shift to zero. If this is the case, there is no need for a costly adjustment to the new equilibrium (atmosphere), as inflation expectations drive the true rate of inflation.

Ok, the two arguments are a bit different, but I still think that Torres would make a great economist 😉

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