Can you think of an economy where the money supply is increasing but consumer
prices are falling dramatically? Eyjólfur
Guðmundsson can: it’s called EVE Online. Over the course of the third
quarter of 2007 – which is equivalent to about three years IRL, money
supply rose from ISK75 trillion to just over ISK90 trillion. At the same time,
however, both producer and consumer prices have been falling.
Aaron Schiff asks the natural question:
What aspect(s) of the game’s design have lead to breaking the relationship
between increasing money supply and inflation?
Since we don’t have numbers for GDP in EVE, nor for the velocity of money,
it’s hard to get a good answer. But maybe Guðmundsson will address the
question in his next quarterly economic newsletter.