Beware shallow economic analysis

I n f inancial market s , much analysis is based on shallow economic analysis, that is on economic mechanisms that seem intuitive and obvious. This is the case for example of the following presumed mechanisms: Declining unemployment leads to higher inflation; Excessive demand stimulus (as is the case today with fiscal and monetary policies in the United States) leads to inflation; Excessive money supply growth is inflationary; Exchange rate depreciation stimulates growth. Unfortunately, these presumed mechanisms are wrong, even though they can move financial markets in the short term because they seem credible.