John Cochrane’s Lesson on Inflation

× This past week, on 1 October, I had the privilege of attending Mario Draghi’s Karl Brunner Distinguished Lecture. I will write about that at a later time. While looking for the recording, I came across John Cochrane’s inflation lecture in the same series. Cochrane starts with inflation and ends up asking how governments finance their promises. That is a useful route into a subject usually discussed through the next central bank meeting. We spend a great deal of time debating whether interest rates should move by 25 basis points. We spend less time asking what makes the liabilities being issued at those rates worth holding. I found the lecture compelling, although I would separate its central insight from its claim to explain recent inflation. Treating government debt as an asset with an underlying source of value is powerful. Establishing which mechanism drove a particular inflation episode requires more evidence. Cochrane is also unusually explicit about where the models still…