Measuring inflation: an attempt to operationalize Carl Menger's concept of the inner money.

Abstract

This paper attempts to operationalize Carl Menger's concept of the 'innerer Tauschwert des Geldes', i.e. the inner value of money.Since the change in the inner value of money is the component of price movements which is due to monetary influences, the operationalization provides an alternative measure of inflation.We consider several approaches for gauging the change in the inner value of money.Of these, we use Quah and Vahey's structural VAR model to identify the price movements in the Netherlands and the EU due to monetary shocks.