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Indexed Units of Account: Theory and Assessment of Historical Experience

In: Indexation, Inflation and Monetary Policy

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  • Robert J. Shiller

    (Yale University)

Abstract

An indexed unit of account is a money analogue, used to express prices; the unit's purchasing power is defined by an index. Indexed units of account are not true money in that they are not used as a medium of exchange. The first successful indexed unit of account, the Unidad de Fomento (UF) has been used in Chile since 1967, and has been copied in Colombia, Ecuador, Mexico, and Uruguay. The reasons for creating such units are discussed from the standpoint of monetary theory. The experience with such units in Chile is discussed. It is argued that important practical problems in implementing indexation are solved by creating such indexed units of account. The author advocates creating such units in other countries, even countries with relatively low rates of inflation such as the United States, and argues that an alternative definition of the units, relating the units to measures of income, may also be advantageous. Ideally, such indexed units of account might someday be "monetized," i.e., institutions such as debit cards may be devised to allow the units to be used for all transactions, so that the role of conventional money might be reduced to clearing-house functions only.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Robert J. Shiller, 2002. "Indexed Units of Account: Theory and Assessment of Historical Experience," Central Banking, Analysis, and Economic Policies Book Series, in: Fernando Lefort & Klaus Schmidt-Hebbel & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Serie (ed.),Indexation, Inflation and Monetary Policy, edition 1, volume 2, chapter 4, pages 105-134, Central Bank of Chile.
    • Handle: RePEc:chb:bcchsb:v02c04pp105-134
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System

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