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Nick, I haven't read the Cochrane paper, so let me just comment on your post. After going through the F and V share analysis (which was very good, btw), the point you are trying to make gets unnecessarily convoluted. First, while you rightly point out the liquidity properties of the V shares, and that this property may have interesting implications, it has nothing to do with what you correctly identify as the central question: They key question to ask is this: when the Finance Office central bank announces an increase in the dividend rate interest rate that it pays on V-shares money (call it Rm), what does it announce about the growth rate of the stock of V-shares money? In my view, all the NeoFisherian propositions which claim that increasing R results in higher inflation are either implicitly or explicitly assuming a correspondingly higher rate of growth in the nominal money/bond supply (ceteris paribus). The only NF brand that may not rely on this is the pure cashless models, where expectations somehow move to generate the result. At the end of the day, my view is that everything hinges on how inflation expectations behave. Those of us who like to emphasize central bank and treasury balance sheets believe that expectations over how these balance sheets evolve over time matter. Those who work with cashless models must rely on some other expectation formation mechanism. Note, these two views are not necessarily mutually exclusive. At the end of the day, it's an empirical question. David Andolfatto
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Dec 14, 2016