Showing papers on "Inflation published in 1974"
TL;DR: The analysis of the revenue from the creation of fiat money is usually carried out in terms of comparative statics as discussed by the authors, where the rate of inflation which maximizes revenue is characterized as the one yielding the highest stream of revenue once all adjustments have been completed: either some rate of monetary expansion is set, and the results corresponding to the long-run values of the variables are analyzed (Friedman 1971), or the inflation rate is fixed at the outset and adjustments taken to be instantaneous, but assuming away any effect of the once-and-for-all changes in real cash
Abstract: The analysis of the revenue from the creation of fiat money is usually carried out in terms of comparative statics. Given the value of relevant parameters, the rate of inflation which maximizes revenue is characterized as the one yielding the highest stream of revenue once all adjustments have been completed: either some rate of monetary expansion is set, and the results corresponding to the long-run values of the variables are analyzed (Friedman 1971), or the inflation rate is fixed at the outset and adjustments taken to be instantaneous, but assuming away any effect of the once-and-for-all changes in real cash balances on the variable to be maximized (revenues), that is, assuming that those changes are met by once-and-for-all changes in the price level (Bailey 1956). Of course, both procedures amount to the same thing. This is, indeed, the correct analysis in processes in which the transition period can be assumed away because the long-run value of the variable to be maximized is reached asymptotically from the very beginning, so that the highest stream at any point is also the stream with the highest present value at the initial point. This is not so in the case of the revenue
170 citations
TL;DR: In this article, psychological analysis of consumers' spending and saving behavior in response to inflation, recession, or increased assets and inventories is shown to result in findings that differ from generalizations presented by traditional economic analysis.
Abstract: Psychological analysis of consumers' spending and saving behavior in response to inflation, recession, or increased assets and inventories is shown to result in findings that differ from generalizations presented by traditional economic analysis. The paper indicates the usefulness of the methods applied in behavioral studies of economic processes.
170 citations
01 Jan 1974
TL;DR: A number of external influences or shocks that have important impacts on income, employment, and prices are unforeseeable and unavoidable, economic policy must somehow deal with their consequences as mentioned in this paper.
Abstract: THE ECONOMY IS ALWAYS VULNERABLE to a variety of external influences or shocks that have important impacts on income, employment, and prices. While these external shocks are unforeseeable and unavoidable, economic policy must somehow deal with their consequences. Lately an alarming number of upward jolts to prices have come from sources beyond the normal interaction of production, wages, and prices. One was the relative decline in the value of the dollar following the abandonment of the system of fixed exchange rates, which raised the prices of imported goods and contributed to the rise in farm prices as exports competed with domestic consumption. A number of other events shook the economy at about the same time. Crop failures in the Soviet Union resulted in a gigantic sale of American grain. The Peruvian anchovy catch mysteriously
148 citations
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146 citations
TL;DR: This article examined the redistributional effects of inflation on wealth-holdings of households and corporations, extending the exploratory studies just noted by utilizing information on the moderate United States infhtion during the last two decades.
Abstract: OW important is it to avoid moderate inH flation, such as we have suffered intermittently since World War II? Until the 1950's there were virtually no empirical studies of the effects of inflation on the level or distribution of output and wealth, except for the great hyperinflations. Recent years have seen extensive development of the theory of inflation and a few exploratory empirical studies of the tosts of moderate, non-run-away inflation, but we still have only limited information on these costs as a basis for policy judgments, for example, when we face the much-discussed trade-off between inflation and unemployment.' This paper examines the redistributional effects of inflation on wealth-holdings of households and corporations, extending the exploratory studies just noted by utilizing information on the moderate United States infhtion during the last two decades.2
95 citations
01 Jan 1974
TL;DR: In this paper, the role of labor markets in the process of inflation is discussed, and it is shown that an increase in aggregate demand raises employment and reduces unemployment, and prices rise in the face of increasing costs.
Abstract: CHANGES IN AGGREGATE demand are the fundamental source of changes in the price level. In the long run, the supply of resources determines the volume of real output, the quantity of money determines the nominal value of output, and the price level is the ratio of the two. Economists who disagree with Milton Friedman's famous dictum that "itiflation is everywhere and always a monetary phenomenon" have doubts mainly about the mechanism linking monetary expansion to inflation. Underlying my discussion of the role of labor markets in the process of inflation is the hypothesis that an increase in aggregate demand raises employment and reduces unemployment. The economy then moves up and to the left along the Phillips curve and wages start to rise more rapidly. Finally, prices rise in the face of increasing costs. If aggregate demand is stabilized at the new, higher, level, the economy comes to rest with a correspondingly higher wage and price level. The inflationary btilge in real aggregate demand disappears as the process reaches its conclusion. The intellectually weak link in this description of the process of inflation is the Phillips curve. Most economists regard the negative relation between tmemployment and wage inflation as a plausible empirical generalization without a firm grounding in economic theory. Recently offered theories of
64 citations
TL;DR: This paper found that public preferences over unemployment-price-change targets are embedded in voting statistics, indicating that voters are likely to have strong opinions on the matter and that these opinions systematically influence voting behavior.
Abstract: The structure of the United States economy is generally thought to impose, in the short run, a trade-off between unemployment and price inflation. Regardless of the reasons for this social constraint (and opinion is widely varied on the structural relations underlying it), those who believe that monetary and fiscal policy can influence the performance of the economy along the price change and unemployment dimensions are confronted with the problem of choosing a single target. Voters are likely to have strong opinions on the matter. To the extent that these opinions systematically influence voting behavior, information regarding public preferences over unemployment-price-change targets is embedded in voting statistics.
51 citations
01 Mar 1974
TL;DR: In this article, an analysis of the factors underlying the recent acceleration of price inflation in Germany was made in order to see whether price expectations give a satisfactory explanation of recent price behavior in Germany.
Abstract: THE EMPIRICAL ANALYSIS in this paper of the factors underlying the recent acceleration of price inflation in Germany was made in order to see whether price expectations give a satisfactory explanation of recent price behavior in Germany. Specifically, the hypothesis is tested that price expectations exercise at least a partially independent influence on actual price behavior. The paper differs from earlier analyses in that it uses a method for quantifying price survey results to derive an explicit time series of price expectations. Section I describes the method used and shows the derived series of expected price increases. Section II tests several expectations hypotheses, and Section III presents an assessment of the influence of price expectations on actual price behavior in the recent past. Some conclusions are set out in Section IV. The pace of price inflation in Germany has recently accelerated strongly. In the case of industrial producer prices, the acceleration began with the first signs of a new upswing in the beginning of 1972. In earlier business cycles industrial producer prices showed a distinct pattern of at least slow rises, if not declines, during the downswing and even after the lowest point of the cycle was reached. Chart 1 shows the development of industrial producer prices during the cyclical downswings and at the beginning of upswings for the past three cycles. While the increase of the index of industrial producer prices during the downswing of the earlier two cycles, which lasted for over two years, amounted to about 2 per
49 citations
01 Jan 1974
TL;DR: In the early 1970s, the business and popular press let scarcely a week go by without some reference to the possibility of indexing bonds, savings accounts, and even contracts, to the price level as discussed by the authors.
Abstract: IN EARLY 1974 the business and popular press let scarcely a week go by without some reference to the possibility of indexing bonds, savings accounts, and even contracts, to the price level. In this way, some argue, the corrosive symptoms of inflation can at least be neutralized, even if the malady itself cannot be cured. The basic principle is not new. The search for an immutable standard traces back at least to Jevons;l and Irving Fisher apparently succeeded in persuading an American firm to issue an indexed bond in 1925. More recently, in the 1950s, Finland, France, and Israel, among other countries, have resorted to such practices for governmental obligations and savings accounts; and Latin American countries have experimented with deposit accounts denominated in dollars, as well as with adjustable exchange rates.2 Renewed interest in indexing is a clear consequence of the persistence of inflation in the developed countries in recent years. Monetary and fiscal policy has been of little avail; and the apparent failure of price and wage controls, joined to the cost implications of shortfalls of energy and food
47 citations
TL;DR: In this paper, a dynamic inflation model for parachutes is presented, which predicts increased dimensionless inflation times and increased dimensioness inflation forces observed at high altitudes at high altitude.
Abstract: This paper describes a dynamic inflation model for parachutes which predicts increased dimensionless inflation times and increased dimensionless inflation forces observed at high altitudes. As altitude is increased, greater relative parachute inertia results in increased inflation times, and greater relative total system inertia results in increased maximum inflation forces. The effect of Mach number on inflation force is also predicted by the inflation model.
TL;DR: In this paper, the authors identify four channels through which foreign inflation impinges on the domestic economy and show how each of these creates subsequent repercussions through- out the system, while monetary and fiscal policies should in general be directed at all three objectives, exchange rate policy should be directed only the internal policy goals.
Abstract: An analysis of imported inflation in a short-run macroeconomic model. We identify four channels through which foreign inflation impinges on the domestic economy and show how each of these creates subsequent repercussions through- out the system. Under fixed exchange rates some of the feedbacks operate in offsetting ways, making most of the total responses indeterminate. These ambi- guities tend to disappear in the limiting case of perfect capital mobility. In discussing the policy implications of the model, we focus on the three policy objectives, domestic output, domestic inflation, and the balance of payments. Particular emphasis is placed upon the use of exchange rates as a strategic variable for achieving domestic stability. We show that while monetary and fiscal policies should in general be directed at all three objectives, exchange rate policy should be directed at only the internal policy goals. The paper concludes with a brief discussion of the flexible exchange rate case. Une analyse de l'inflation importee dans un modele macroeconomique a court terme. Les auteurs identifient quatre canaux par lesquels l'inflation a l'etranger a une influence sur l'economie domestique. Ils montrent comment chacun com- porte des effets dans l'ensemble du systeme. En situation de taux de change fixe, certaines des effets se manifestent de fagon compensatoire, ce qui donne un effet global indetermine. Ces ambiguit6s ont tendance "a disparaitre dans le cas limite
TL;DR: The sharp rise in the rate of inflation in 1973, after two years of diminishing rates, was a great surprise to many as discussed by the authors, and many reasons have been advanced to explain this change, some of them logical, and some not.
Abstract: The sharp rise in the rate of inflation in 1973, after two years of diminishing rates, was a great surprise to many. What was the primary cause? Many reasons have been advanced to explain this change, some of them logical, and some not. Most of the explanations are based, in one way or another, on the basic cause of inflation: too much money chasing too few goods. It is well known that the Federal Reserve has powerful tools to increase or decrease the amount of money in circulation, thus causing it to turn on or shut off the spigot that regulates the degree of inflation. The only trouble is that sometimes other factors are present that nullify these efforts. Thus, for instance, the unusually gigantic exports of farm products to Russia, Poland, China and other countries threw the efforts of the Fed higher than a kite. For many years it was difficult for this country to keep down farm production, and farm prices were too cheap. Suddenly shortages developed, caused by (1) poor crops all over the world, except in this country; and (2) greater buying power abroad because of the cheapness of the dollar caused by two devaluations. Undoubtedly this had great influence in the sharp, sudden rise, first of farm products and later of other goods, as other nations suddenly found themselves able to convert their own currency into more dollars, and at a time when inflation was rising abroad. But another explanation has been advanced by many knowledgeable economistsseemingly unknown to Congress and to the majority of the voting public-which puts the primary blame on federal budget deficits. This is quite logical since deficits greatly increase the amount of money in the hands of the public.
01 Jan 1974
TL;DR: The authors discusses the theory of money and income consistent with orthodox value theory and presents a theory that has a perfectly competitive, private supply of all goods, which is called perfectly competitive money economy.
Abstract: Publisher Summary This chapter discusses the theory of money and income consistent with orthodox value theory. It also presents a theory that has a perfectly competitive, private supply of all goods. There is a money economy that is consistent with orthodox value theory, and in any such economy, which is called perfectly competitive money economy, there is (1) a classical dichotomy between the real and monetary sectors, (2) an absence of real balance effects, (3) an absence of effects of expected inflation on the real sector of the economy, and (4) an imperviousness of output prices and employment in a sticky-wage economy to shifts in capital productivity, thrift, liquidity preference, and the money supply of any individual. The chapter also discusses the existence and Pareto optimality of an equilibrium consistent with orthodox value theory in which money emerges as an individually selected, specialized medium of exchange.
TL;DR: For example, the authors showed that the average relation between unemployment and inflation is inverse, convex, and has a positive intercept on the unemployment axis, and that a higher rate of inflation is associated with a higher level of unemployment when inflation is accelerating than when inflation decelerating.
Abstract: The seminal study by Phillips (1958) revealed two empirical regularities with regard to British cycles in unemployment and wage inflation prior to the Second World War. These same regularities appear also to characterize the experience of European and North American countries during that period. First, the average relation between unemployment and inflation is inverse, convex, and has a positive intercept on the unemployment axis. In other words, on average, the lower the unemployment rate the higher the rate of wage inflation, the lower the unemployment rate the greater the increase in the inflation rate associated with a further decrease in the unemployment rate, and at a zero rate of wage inflation the unemployment rate is significantly positive-almost 2- per cent in Phillips' study. Secondly, when wage inflation begins to accelerate, typically unemployment briefly increases before beginning to decline. Analogously, when inflation begins to decelerate, typically unemployment briefly decreases before beginning to rise. Thus, the pattern of the typical cycle traces out a counterclockwise loop around the average relation between unemployment and inflation. A given rate of inflation is associated with a higher level of unemployment when inflation is accelerating than when inflation is decelerating. Figure 1 illustrates the typical cyclical pattern prior to the Second World War. Since the war the cyclical pattern of unemployment and wage inflation seems to have changed. Specifically, although the average relation between unemployment and inflation seems qualitatively unaltered, if statistically less pronounced, the second of the two regularities discussed above seems to be reversing. In recent cycles, when inflation has accelerated, often unemployment has initially decreased. However, in the final stages of accelerating inflation, unemployment has increased. This transitional period of persistently rising inflation and rising unemployment has become known popularly as "stagflation". Analogously, when inflation has decelerated, unemployment has initially increased. However, in the final stages of decelerating inflation, unemployment has decreased. Thus, since the Second World War, the pattern of the typical cycle has shown a tendency to trace a clockwise, rather than counterclockwise, loop. A given rate of inflation now appears
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01 Jan 1974TL;DR: In this article, the authors refer to what is possible the major macroeconomic problem facing the Western economics today; namely, the reasons why the supposedly mild inflations of the two decades following the Second World War, have now turned into the far more intractable "stagflation" besetting theorist and policymaker alike.
Abstract: We begin'by referring to what is possible the major macroeconomic problem - both for analysis and for policy - facing the Western economics today; namely, the reasons why the supposedly mild inflations of the two decades following the Second World War, have now turned into the far more intractable "stagflation" besetting theorist and policy-maker alike.
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01 Jan 1974
TL;DR: In this article, economic issues are discussed, including markets, demand and supply, markets in action, markets failures, government policy, and international economic issues, including international trade and currency exchange rates.
Abstract: Preface Introduction: Economic Issues PART A: MICROECONOMICS 1 Markets, demand and supply 2 Markets in action 3 The supply decision 4 Market structures 5 Wages and the distribution of income 6 Market failures and government policy PART B: MACROECONOMICS 7 The national economy 8 Money and interest rates 9 Unemployment, inflation and growth 10 Macroeconomic Policy PART C: INTERNATIONAL ECONOMICS 11 International trade 12 Balance of payments and exchange rates Answers to odd numbered end-of-chapter questions Web appendix Glossary and key ideas Index
TL;DR: In this paper, it was shown that if a country imposes a 10 percent duty on all imports and a subsidy on all exports, this is equivalent to a 10% devaluation of its currency insofar as its commodity trade is concerned, this will have no effect on the balance of trade unless and until it is offset by a 10 % revaluation of the currency or a general 10 percent inflation of all its domestic money prices and costs.
Abstract: If a country imposes a 10 percent duty on all imports and a 10 percent susbsidy on all exports, this is equivalent to a 10 percent devaluation of its currency insofar as its commodity trade is concerned. This will have an effect on the balance of trade unless and until it is offset by a 10 percent revaluation of the currency or a general 10 percent inflation of all its domestic money prices and costs. It will then have no effect upon the quantities of production, consumption, import, or export of any commodity. Its only effect will be a monetary one on the rate of exchange between the domestic currency and foreign currencies or on the general level of prices and costs in terms of the domestic currency. This well-known proposition can be extended to cover a group of countries. Consider three countries-A, B, and C. Suppose that A and B (having perhaps formed an economic union) agree to impose a 10 percent duty on imports from C and a 10 percent subsidy on exports to C without taxing or subsidizing their imports from and exports to each other. If A's and B's currency both appreciate by 10 percent in terms of C's currency, or if A's and B's domestic money price and cost levels both go up by 10 percent relatively to C's domestic money prices and costs, there will be no real effect on any quantity of any commodity produced, consumed, or traded. The proposition can then be further extended by combining the two ideas expressed in the preceding two paragraphs. Imagine the following sequence of events. 1. First A imposes a border-tax adjustment of tbc on its trade with B
01 Jan 1974
TL;DR: In this paper, the authors discuss monetary policy in developing countries and the relationship between inflation and economic development, arguing that monetary policy is concerned primarily with the quantity of money, not with the terms and availability of credit, and that inflation is always and everywhere a result of a rapid rate of increase in the amount of money.
Abstract: Publisher Summary This chapter discusses monetary policy in developing countries. From the long-run point of view, the problem of desirable monetary policy reduces primarily to the desirable rate and form of inflation. Two intermediate steps lead to this identification: the recognition that monetary policy is concerned primarily with the quantity of money, not with the terms and availability of credit, and that inflation is always and everywhere a result of a rapid rate of increase in the quantity of money. The chapter discusses these two intermediate steps before turning to the relation between inflation and development. The best way to foster an effective and diversified financial structure is to let financial institutions develop in response to market forces. Repressing prices of goods and of labor, while no less frequently attempted than repression of exchange rate and interest rates, generally does less economic harm. The reason is that they tend to be easier to evade. However, they do great social harm. Given price controls, black markets serve a socially useful purpose by preventing the distortions that would otherwise develop. The effect of price controls is, therefore, to make socially and individually beneficial action that is morally repugnant because it involves breaking the law. The conflict tends to undermine the moral capital of a nation. Good monetary policy cannot produce development. Economic development fundamentally depends on much more basic forces: the amount of capital, the methods of economic organization, the skills of people, the available knowledge, the willingness to work and to save, and the receptivity of the members of the community to change.
TL;DR: In this article, the effects of applying price-level adjustments in a world where uncertainty exists were examined, using estimation theory to examine the results of implementing price level adjustments in such a setting.
Abstract: Previously, Bierman concluded "that the application of price-level adjustment factors to the depreciated cost of an asset can lead to distorted value measures where the firm expected inflation to take place, and made its investment decisions based on this expectation." 1 In his paper, Bierman indicated this conclusion in a world of certainty. The purpose of this paper is to examine the effects of applying price-level adjustments in a world where uncertainty exists. To accomplish this, estimation theory is used to examine the results of implementing price-level adjustments.
Book•
01 Jul 1974
TL;DR: In this article, the authors derived the unsteady pressure distribution on a decelerating, inflating parabolic shell of revolution in the presence of a starting vortex flow and used this pressure distribution to calculate the inflation loads and inflation times on a variety of subsonic parachute assemblies.
Abstract: Details are given of a new method for calculating the inflation loads and inflation times on a variety of subsonic parachute assemblies. The new method is intended to serve as an alternative to the "filling time" method proposed in the last decade by Heinrich et al. The current paper derives the unsteady pressure distribution on a decelerating, inflating parabolic shell of revolution in the presence of an unsteady starting vortex flow. If this resulting pressure distribution is used in conjunction with the structural constraints on the parachute system, then it is possible to find explicitly the opening loads and opening times. In essence, the method is a numerical solution a nonlinear, second-order differential equation beginning with an appropriate set of initial conditions. This equation appears as Eq. (40) in the text. A series of numerical examples are given to illustrate the versatility of the method. First, the effects on the inflation loads and times as a result of a variation in the mass of the load and a variation in altitude will be shown. Then it will be shown that, when compared to a solid canopy, any geometric porosity in the vent area tends to increase the inflation time, while some geometric porosity in the skirt area tends to decrease the inflation time. This latter effect is entirely contrary to the notions inherent in the filling time method of predicting the opening performance.
TL;DR: In this article, market power and inflation were modeled using a short run target return model, and the model was applied to the United States economy in the 1970s and 1980s.
Abstract: (1974). Market Power and Inflation: A Short-Run Target Return Model. Journal of Economic Issues: Vol. 8, No. 2, pp. 453-478.
TL;DR: In this paper, the authors developed and tested the hypothesis that the savings ratio is positively related to the rate of domestic inflation as long as inflation is mild, but negatively related if inflation is excessive.
Abstract: Using cross section data, the paper develops and tests the hypothesis that the savings ratio is positively related to the rate of domestic inflation as long as inflation is mild, but negatively related if inflation is excessive. ‘Optimum’ rates for inflation can be derived, but the point estimates in many samples are not significantly different from zero. The model developed tries to capture any distorting effect that foreign capital inflows may have on the inflation‐saving relation, and also tries to distinguish the inflation hypothesis from other traditional hypotheses such as the life‐cycle hypothesis and the Keynesian ‘absolute’ income hypothesis.
TL;DR: In this paper, the authors investigate the extent to which empirical support for one of the key industry hypothesis may be found in the characteristics of money-wage inflation in fifteen industrial countries, in all of which the structural relationships underlying the determination of money wages were oligopolistic product markets, strong trade unions and reasonable aggregate stability near full employment.
Abstract: The rate of growth of money wages is the outcome of a complex combination of social and economic forces, the relative importance of the elements of which varies from time to time, and from one country to another. Accordingly there has been a proliferation of theories of inflation. This paper is concerned with the extent to which empirical support for just one of these theories, the so-called " key-industry" hypothesis, may be found in the characteristics of money-wage inflation in fifteen industrial countries, in all of which the structural relationships underlying the determination of money wages were oligopolistic product markets, strong trade unions and reasonable aggregate stability near full employment. The forces which cause inflation may be divided into two groups. In the first group may be placed those factors called, for the purposes of this paper, " special effects ", which occur relatively infrequently, and, in general, have a once-and-for-all effect (although that effect may reverberate for some time). Examples are a devaluation, which by raising the prices of imported goods leads to upward pressure on money wages as unions seek to restore the real wages of their members; severe social conflict such as that in France in May 1968; and significant changes in the degree of state intervention in the wage-bargaining process. In the second category belong those forces which are believed to exert a systematic influence on the course of money wages, linking the rate of money wage inflation to the behaviour of particular economic, social or political variables. Empirical analyses designed to detect forces of the second type have typically concentrated on examination of the explanatory power of various aggregate statistics with respect to the rate of change of the average level of money wages (or in studies of price inflation, the average price level). Such investigations assume a considerable degree of behavioural uniformity across the diverse sectors of the economy. But the results of crosssection studies designed to detect sectoral determinants of wage inflation have, in general, failed to find any systematic elements underlying wage inflation in individual industries.3 One consistent characteristic of money-wage changes by sector that has emerged, however, is a high degree of uniformity in the rates of increase of earnings across all sectors of the economy, particularly across aU sectors of manufacturing.4 This inter-sectoral homogeneity in the face of the heterogeneity of most other (apparently relevant) variables