The aim of the paper is to develop a new approach to inflation based on Manes circuit of capital and the structural price equation which is hown to be simultaneously determined with the circuit equation. The feedback effect of any disequilibrium in the circuit has some important consequences for the price equation. The reduced form of the model shows in particular bow the ecchange rate and the interest rate can influence the general price level in addition to other determinants of the price equation, namely a productivityvariable and an input pricevariable. This constitutes a major improvement over other approaches to inflation in which the exchange rate fluctuation is neglected, the hypothesis of a closed economy being assumed, and the definition of money is reduced to a umieraire.
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