Showing papers on "Inflation published in 1978"
TL;DR: In this article, an analysis of unanticipated money growth is extended to output and the price level (GNP deflator) for recent U.S. experience, and the results support the key hypothesis of a one-to-one, contemporaneous link between anticipated money and the GNP level.
Abstract: Earlier analysis of unanticipated money growth is extended to output (GNP) and the price level (GNP deflator) for recent U.S. experience. Price level determination is more complicated than output determination, because both anticipated and unanticipated money movements are involved. Empirical results accord well with the model--notably, they support the key hypothesis of a one-to-one, contemporaneous link between anticipated money and the price level. Precise estimates are obtained for the lagged responses of output and prices to unanticipated money movements. Cross-equation comparisons indicate that the price response to unanticipated money movements has a longer lag than the output response. A form of lagged adjustment in money demand can account for this difference. The forecasts for inflation average 5.5 percent per year for 1977-80.
634 citations
TL;DR: In this paper, the authors developed a natural measure of the amount of relative price variability, which is correlated with the rate of change in the price level using data for consumer goods in both the Netherlands and the United States.
Abstract: The paper develops a natural measure of the amount of relative price variability. The variance of relative price change is shown to be correlated with the rate of change in the price level using data for consumer goods in both the Netherlands and the United States. This association has been noted in other data for a variety of countries. Using a multisectoral supply-and-demand framework, the paper goes on to show how changes in relative prices and ultimately the variance of relative price changes are related to supply conditions changes in real income and the amount of unanticipated inflation. The model is used as the basis for an analysis of movements in the prices of consumer goods in the United States for the period 1929-75. The amount of unanticipated inflation (measured as the difference between the actual rate and a time-series predictor) is a more important determinant of relative price variability than the rate of inflation.
421 citations
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TL;DR: In this paper, a crucial cause of the failure of share prices to rise during a decade of substantial inflation was discussed, and it was shown that the share value per dollar of pretax earnings actually fell from 10.82 in 1967 to 6.65 in 1976.
Abstract: This paper discusses a crucial cause of the failure of share prices to rise during a decade of substantial inflation. Indeed, the share value per dollar of pretax earnings actually fell from 10.82 in 1967 to 6.65 in 1976. The analysis here indicates that this inverse relation between higher inflation and lower share prices during the past decade was not due to chance or to other unrelated economic events. On the contrary, an important adverse effect of increased inflation on share prices results from basic features of the current U.S. tax laws, particularly historic cost depreciation and the taxation of nominal capital gains.
365 citations
TL;DR: In this article, a crucial cause of the failure of share prices to rise during a decade of substantial inflation was discussed, and it was shown that the share value per dollar of pretax earnings actually fell from 10.82 in 1967 to 6.65 in 1976.
Abstract: This paper discusses a crucial cause of the failure of share prices to rise during a decade of substantial inflation. Indeed, the share value per dollar of pretax earnings actually fell from 10.82 in 1967 to 6.65 in 1976. The analysis here indicates that this inverse relation between higher inflation and lower share prices during the past decade was not due to chance or to other unrelated economic events. On the contrary, an important adverse effect of increased inflation on share prices results from basic features of the current U.S. tax laws, particularly historic cost depreciation and the taxation of nominal capital gains.
278 citations
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01 Jan 1978
TL;DR: In this groundbreaking work, first published in 1976, Friedrich von Hayek argues that the government monopoly of money must be abolished to stop recurring bouts of inflation and deflation as discussed by the authors, also the cure for the more deep-seated disease of the recurring waves of depression and unemployment attributed to 'capitalism'.
Abstract: In this groundbreaking work, first published in 1976, Friedrich von Hayek argues that the government monopoly of money must be abolished to stop recurring bouts of inflation and deflation. Abolition is also the cure for the more deep-seated disease of the recurring waves of depression and unemployment attributed to 'capitalism'.
170 citations
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151 citations
TL;DR: The relationship between exchange rates and relative price levels in a sample of fourteen countries is studied for periods of fixed and of floating exchange rates in this article, and it turns out that both the average size of the divergencies and their duration are smaller under the fixed rate period 1957-1966 than under the recent period of floating rates.
143 citations
143 citations
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134 citations
TL;DR: For over a decade now we have had a persisting problem of inflation, and for most ofthat period the unemployment rate has also been high as mentioned in this paper, and the probability that after a decade any new approaches or new insights can be developed would seem to be low.
Abstract: Yet another paper on full employment and price stability would seem to be a leading candidate for prizes in the Departments of Futility and Temerity. For over a decade now we have had a persisting problem of inflation, and for most ofthat period the unemployment rate has also been high. The probability that after a decade any new approaches or new insights can be developed would seem to be low. If Mark Twain were writing today he would probably cite inflation and unemployment, rather than weather, as something much discussed and about which obviously little is done.
TL;DR: Barro and Grossman as discussed by the authors presented a more satisfactory model of the balance of trade, which is based on Clower's dual decision hypothesis, which leads to a distinction between recalculated or effective demands or supplies and original or notional ones.
Abstract: The importance of accepting the failure of prices to adjust to their Walrasian equilibrium levels instantaneously is now widely recognized. When economic activity is attempted at such sticky prices, it is the adjustment of quantities that leads to a short run or temporary equilibrium. The first effect is that in any market where the price fails to adjust, the " short " side of the market determines the actual amount transacted, and the " long " side is rationed. But even more important are the repercussions that arise as transactors who have failed to satisfy their initial demands or supplies in one market recalculate their actions in other markets. This is Clower's dual decision hypothesis, which leads to a distinction between such recalculated or effective demands or supplies and the original or notional ones. The nature of the initial market imbalance depends on the values taken by the sticky prices, and the resulting temporary equilibria with rationing are of different kinds. Recent years have produced some models of closed economies based on this approach. In particular, Barro and Grossman (1976) and Malinvaud (1977) have completed the classification of possible equilibria in a model with labour, aggregate output and fiat money. They divide the wage-price space into regions corresponding to three kinds of equilibria. In the first region the real wage is too high, and consumers face rationing both when buying commodities and when selling labour; this is labelled the region of classical unemployment. The second region has Keynesian unemployment in the sense that there is excess supply in both the commodity and the labour market. The third region has excess demand in both markets, and corresponds to repressed inflation. In these two cases, the real balance effect on demand is an important force. These developments have not so far touched international trade theory. The conventional approach embodied in the diagrams of Swan (1963) and Mundell (1968) is a simple income-expenditure one. It largely neglects wages and prices, and assumes output to be demand-determined. This is a poor choice theoretic framework. It is at best an ad-hoc way of approaching effective demand-determined or Keynesian equilibria, but is quite inappropriate for the other kinds. The work of Meade (1951), from which this approach can be said to derive, pays more attention to some prices, but still falls short of giving a proper logical account of the dual decision process. On the other hand, the monetary approach which has recently come into prominence following Frenkel and Johnson (1976), while paying more attention to prices and choices, usually goes to the other extreme and assumes instantaneous attainment of Walrasian equilibrium in commodity and labour markets. An exception is Rodriguez's paper in that volume, but he admits labour market disequilibrium simply by replacing that component of the standard monetary model by an income-expenditure one. This brings in the attendant flaws mentioned above. This paper is a first attempt at giving a more satisfactory model of the balance of trade,
TL;DR: In this article, a closed economy producing a single final good with attention to traditional matters of capital, inflation, and interest is considered, where the supply shock is represented by a permanent decline in the supply per unit of time, denoted σ, of some raw material consumed in the production process.
Abstract: If one or more unanticipated disturbances should cause the expectation of a lengthy contraction of commodity supplies, what quick adjustment of the money supply—failing a quick adjustment of money wage rates—would be required to maintain the normal volume of employment or whether the monetarist course be best suited to avoid both the Scylla of underemployment depression and the Charybdis of overemployment wage inflation. This chapter presents a formal analysis of this theoretical question. It discusses a closed economy producing a single final good with attention to traditional matters of capital, inflation, and interest. The supply shock is represented by a permanent decline in the supply per unit of time, to be denoted σ, of some raw material consumed in the production process.
TL;DR: In this article, the authors discuss the possible choice between inflation and jobs and the choice between taxes on money balances and taxes of other kinds, and conclude that variability of inflation imposes costs on the economy that we should consider when we choose a macroeconomic policy.
Abstract: TWO separate policy issues have led to discussion of a preferred rate of inflation: the possible choice between inflation and jobs, and the choice between taxes on money balances and taxes of other kinds. Okun (1971) for the first of these issues and Logue and Willett (1976) for the second, among others, have remarked that the discussion is typically conducted as though a more inflationary policy means a rise from one steady rate to a higher steady rate. The world might not be like that; a rise in the average rate of inflation might mean, inevitably, a rise in its variability. Okun presented some evidence to suggest that countries with higher rates of inflation do experience more variable rates and suggested why it might be so; Gordon (1971) called the evidence" into question. Logue and Willett presented further results that supported Okun's position; but their results did not support Okun in the case of highly industrialized countriesthe ones that concerned him. Below I summarize these findings and report additional evidence that supports Okun for highly industrialized as well as other countries. The reason for Okun's concern is that variability of inflation imposes costs on the economy that we should consider when we choose a macroeconomic policy.' Section II supports the claim that there is an empirical relation across countries between the average rate of inflation and the variability of that rate; but it says nothing about the slope, or even the existence, of a functional relation between them that represents an opportunity locus for a single country. In section III, I conclude with a brief discussion of this issue.
TL;DR: The persistence of inflation during periods of high unemployment poses the central problem for macroeconomic policy in the 1980's, and many economic commentators have surmised that a given level of unemployment now "buys" a smaller reduction in the rate of inflation than in the past.
Abstract: The persistence of inflation during periods of high unemployment poses the central problem for macro-economic policy in the 1980's. The forecasts of major econometric models for the United States broadly agree that a sustained period of underemployment of resources will be required to markedly reduce the prevailing rate of inflation. Indeed, many economic commentators have surmised that a given level of unemployment now "buys" a smaller reduction in the rate of inflation than in the past. In technical terms, they suggest that the slope of the short-run Phillips curve has declined over time. In the vast econometric literature on the Phillips relationship, surprisingly little formal analysis has been made of long-term changes in the curve's parameters. Both methodological problems and data limitations make a long-term analysis difficult. Two studies of the secular trend in cyclical wage and price flexibility have recently appeared. The studies use different analytic techniques and reach opposing views on the changing inflation-unemployment tradeoff. In an innovative study of wholesale price behavior in the 1920's and the post-World War II period, Phillip Cagan concludes that "wholesale prices show a smaller decline in the recessions after 1948-49 than formerly," and that "there has clearly been a gradual decline in price response to recessions over the postwar period, except mainly for raw
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TL;DR: Vining and Elwertowski as mentioned in this paper examined empirically the relationship between the variability of the rate of inflation in the general level of prices, and the variance of the rates of change in relative prices.
Abstract: In a thought-provoking paper in this Review, Daniel Vining and Thomas Elwertowski examine empirically the relationship between the variability of the rate of inflation in the general level of prices, and the variance of the rate of change in relative prices. They find a positive association between these two variances and interpret this finding as a contradiction to a modern stochastic version of the neoclassical model as presented by Robert Lucas (1973). They state: ". . . thus, in contrast to many of his other conclusions, Lucas' remark in an otherwise extremely controversial paper, namely 'that there is no reason to expect X to vary systematically with demand policies' (1976, p. 39), has gone utterly uncontested" (p. 706).' The implication is obviously that this type of model is inconsistent with the above mentioned finding. They go on to interpret their result in light of a recent paper by Robert Barro and interpret this paper as an ". . . effort to account for the observed dependence of heightened relative price change dispersion on general price change instability, relying upon a chain of causality running from general price level change instability to relative price change instability" (p. 707). They finally challenge empirical economists to discriminate between two hypotheses: ". . . i.e., to determine the direction of causality between individual price change dispersion and general price change instability" (p. 708). I claim and demonstrate in this note that: 1) If correctly interpreted the type of manymarkets stochastic model presented by Lucas is perfectly consistent with the finding that there is a positive association between individual price change dispersion and general price change dispersion. 2) It is wrong to interpret the Barro model as providing a rationale for "a chain of causality running from general price level change instability to relative price change instability" (Vining and Elwertowski, p. 707). It should rather be viewed as a conceptual framework in which both the variance of general price change and the variance of individual price change are influenced2 by some common exogenous variances like the variance of aggregate excess demand shocks and the variance of relative excess demand shocks.3 3) Within a framework in which both the variance of general price change and the variance of relative price change are determined endogenously the question regarding the direction of causality between those two variances becomes ambiguous. If for example both variances increase because the variance of the (exogenous) rate of change in nominal income increases, it does not follow logically that either the variance of general price change causes the variance of relative price change, or vice versa. However, the question raised by Vining and Elwertowski does make sense if interpreted as a question concerning the direction of causality between some attributes of aggregate variability and some attributes of relative variability. Such an interpretation is suggested later.
TL;DR: In this article, the authors describe a procedure to calculate an annual cost for machinery which is directly comparable with other annual items such as crop gross margin or contract hire charges, and they use it to show that the annual cost is reduced by inflation although the annual income needed to replace the machine increases with inflation.
TL;DR: In this article, the authors define an inflation hedge and then describe an approach to the use of commodity futures, and show how to incorporate futures in this manner into an investment portfolio and discuss the statistical results of such an investment program.
Abstract: C an an investor consistently hedge a port26 2 8 folio against inflation? Yes, but not by use of common stocks alone. Nor is a combination of common stocks and various debt instruments the answer, unless one has the elusive ability to determine on an ongoing basis how his portfolio should be allocated to these markets. By adding a third component to the portfolio, however, one that is less risky than common stocks and just as liquid, the investor can achieve an inflation hedge. That third component is a unique and highly conservative use of commodity futures. This paper will first define an “inflation hedge” and then describe an unusual approach to the use of commodity futures. Next it will show how to incorporate futures in this manner into an investment portfolio and will discuss the statistical results of such an investment program. \D U m
TL;DR: The authors argue that parties to nonstandardized (idiosyncratic) exchange have incentives to regularize trading relations, that this involves devising a governance structure to harmonize the exchange relation, that quantity rather than price bears the brunt of interim adjustments in these circumstances, and that long and variable price lags arise in this way.
Abstract: The issues that concern us are how wage and price-setting procedures vary with the nature of the good or service being exchanged and what the implications of different procedures for understanding the mechanics of inflation are. We argue that parties to nonstandardized (idiosyncratic) exchange have incentives to regularize trading relations, that this involves devising a governance structure to harmonize the exchange relation, that quantity rather than price bears the brunt of interim adjustments in these circumstances, and that long and variable price lags arise in this way. But while the effects of an inflationary disturbance are more spread out on this account -- which is to say that obligational market exchange relations does, however, complicate the problem of bringing an exogenous inflationary stimulus under control. Macroeconomics is thus linked with microeconomic contracting practices.
01 Jan 1978
TL;DR: In 1970, the Nixon administration tried a different cure, imposing wage and price controls that lasted in modified form until April 1974 as discussed by the authors. But by the time the controls expired, higher prices for food and fuel, which were largely unrelated to the state of demand, and for industrial raw materials, which reflected strong world demand and speculative buying, had created double-digit rates of overall inflation.
Abstract: OVER A DECADE has passed since the standard remedy of demand restraint was first urged to combat inflation. By the mid-1960s, many economists, including those at the Council of Economic Advisers, believed war expenditures were pushing the economy into the inflationary, excess-demand zone and recommended tax increases to help restrain aggregate demand. We cannot know how different subsequent economic performance would have been if that advice had been heeded. But it was not. Unemployment continued to decline into 1969, and the inflation rate in consumer prices rose above 5 percent. Inflation, by then, had become firmly entrenched in economic decisionmaking. When demand finally fell and unemployment rose in the recession of 1970, the inflation rate scarcely budged. Both average hourly earnings and the private nonfarm price deflator rose faster during 1970-71 than in any year of the 1960s. Many observers concluded that a recession deeper than that of 1970 would be needed to stop inflation. In summer 1971, the Nixon administration tried a different cure, imposing wage and price controls that lasted in modified form until April 1974. These controls slowed the inflation rate for most wages and prices. But by the time the controls expired, higher prices for food and fuel, which were largely unrelated to the state of demand, and for industrial raw materials, which reflected strong world demand and speculative buying, had created double-digit rates of overall
TL;DR: In this article, the dynamic behavior of a simple macroeconomic disequilibrium model is analyzed in which consumers' changes in money holdings constitute the dynamic link between any two periods, and it is shown that, under constant government consumption, a constant production function (no investment), and fixed prices and wages, stationary states of Keynesian unemployment are stable whereas those of repressed inflation are globally unstable.
TL;DR: In this article, the authors build a bridge between macroeconomic studies of the effect of inflation on the rate of interest and empirical studies of corporate tax changes to understand the relationship between the two.
Abstract: Although the return to capital is a focus of research in both macroeconomics and public finance, each specialty has approached this subject with an almost total disregard for the other's contribution. Macroeconomic studies of the effect of inflation on the rate of interest have implicitly ignored the existence of taxes and the problems of tax depreciation. Similarly, empirical studies of the incidence of corporate tax changes have not recognized that the effect of the tax depends on the rate of inflation and have ignored the information on the rate of return that investors receive in financial markets. Our primary purpose in this paper is to begin to build a bridge between these two approaches to a common empirical problem.(This abstract was borrowed from another version of this item.)
TL;DR: In this article, it is shown that the appropriate rate is the real opportunity cost rate, that is the market cost of borrowing in real terms, in terms of goods rather than money.
Abstract: High rates of interest (8 to 15%) commonly used in discounted cash flow analysis of genetic improvement schemes have tended to underestimate the value of the returns and to favour breeding programmes with short-term returns. It is shown that inflation should be removed from the interest rate, and an inflation-free rate used in discounting future returns to present-day value.Various methods for choosing discount rates are discussed. It is concluded that the appropriate rate is the real opportunity cost rate, that is the market cost of borrowing in real terms, in terms of goods rather than money. Taking account of inflation the average cost of borrowing in real terms in the United Kingdom over the past 32 years (1945 to 1976) is estimated as 2 to 3%. This also provides the best available estimate for discounting future returns, and it brings the opportunity cost rate into line with the social time preference rate often proposed for public investments.The contrast is made between the value of improvements made in the national interest and of those made by breeders or firms. The former benefit from returns on all national commercial production of improved stocks and the returns accumulate and are recouped over many years. On the other hand breeders and firms benefit only from the extra sales of breeding stock due to their temporary marginal superiority over competition and they are often at high risk of getting no returns. Implications to the form and amount of investment in animal improvement are discussed.
TL;DR: In this article, the effects of economic stagflation on marketing management and consumers are discussed and two related surveys designed to measure the impact of, and adjustments to, stagflation, on the part of marketing managers and consumers.
Abstract: T HE NATURE and quality of the interactions between marketing management and consumers have changed drastically since the start of the current economic stagflation in 1973. A stagnant economy in a period of inflation, stagflation, may be experienced in different forms and to different degrees. Yet all forms and degrees of stagflation are totally new, and their effects on both marketing management and the consumers are quite drastic. The primary objectives of this article are: (1) to discuss the effects of stagflation on business and its consumers; (2) to point out the resulting changes in the marketing mix and in consumers' attitudes and choices; and (3) to derive recommendations for marketing management. To achieve these goals, I conducted two related surveys designed to measure the impact of, and adjustments to, stagflation on the part of marketing management and consumers.
TL;DR: In this article, the authors investigate how unions affect relative wages in Britain and how has the effect varied over time, and what, if anything, does this tell us about the role of unions in wage inflation.
Abstract: This paper is concerned with two questions. First, how do unions affect relative wages in Britain? Second, how has the effect varied over time, and what, if anything, does this tell us about the role of unions in wage inflation?.
TL;DR: In this article, the authors consider a macroeconomic model with constant capacity, an inflation adjustment process depending on excess demand, a government budget restraint, and plausible assumptions, and show that stability is assured if the endogenous policy variable is money, government purchase, or the tax rate.
TL;DR: In this paper, a general model of aggregate household saving behavior is formulated and data from Canada, Germany, Japan, the United Kingdom, and the United States were used to estimate the personal saving function in each of the countries and the results are used to test various hypotheses about personal saving behavior.
Abstract: PERSONAL saving rates, i.e., the ratios of personal saving to personal disposable income, in many industrialized countries have risen dramatically in recent years. A number of attempts to explain the phenomenon of rising saving rates coinciding with price inflation have drawn upon the work of George Katona (1975), who has stressed the feeling of uncertainty and pessimism about the future caused by inflation that, in turn, encourages saving. In this paper a general model of aggregate household saving behavior is formulated. Data on Canada, Germany, Japan, the United Kingdom, and the United States are used to estimate the personal saving function in each of the countries and the results are used to test various hypotheses about personal saving behavior. This paper has two major objectives: to test for a direct influence of inflation on personal saving after taking into account the influence of other relevant factors, including any indirect channels by which inflation may exert an influence (e.g., the level of real liquid assets); and to determine what factors in each country are important for explaining saving behavior.
TL;DR: Fernandez et al. as mentioned in this paper explored the short-run relation between inflation and growth in Latin America and found that the reaction to unexpected inflation depends on the predictability of inflation, because predictability in the five cases is seen to be similar, once one allows for differences in monetary supply processes.
Abstract: This paper explores the short-run relation between inflation and growth in Latin America. The topic was the subject of heated debate between structuralists and monetarists in the 1960's, but extensive empirical exploration has only begun.' The evidence presented here should provide a useful complement to the numerous studies of the relation between output, employment, and inflation in developed countries. Latin America provides a broad set of welldocumented experiments with which to test hypotheses regarding inflation, far broader in fact than the Group of Ten. To examine the relation between growth and inflation, I use a variant of the Phillips models formulated by Edmund Phelps, Robert Lucas and Leonard Rapping, and Lucas (1973). Deviations from normal output or growth rates are attributed to the difference between a reduced form of actual and expected prices, the latter being characterized by rationality, as defined below. The major conclusions obtained using this model are: 1. In Brazil, Chile before Allende, Colombia, Mexico and Peru, a small though significant relation exists between output or growth and "unexpected" inflation. This result is substantially stronger than those obtained in Robert Barro's (1974,1979) studies of Latin American inflations. 2. Ten percentage points of unexpected inflation produce about one extra percentage point of growth. This effect is statistically indistinguishable across the five countries once the different processes of monetary supply and corresponding formulation of expectations are taken into account. This result strongly supports Lucas' hypothesis that the reaction to unexpected inflation depends on the predictability of inflation, because predictability in the five cases is seen to be similar, once one allows for differences in monetary supply processes.2 This effect is also significantly smaller than those obtained by Lucas (1973) for the developed countries with more predictable inflations, confirming his hypothesis of a near vertical Phillips curve when nominal demands are unpredictable. To put it another way, this paper may be considered as an attempt to add a "third data point"-moderately inflationary countries such as Colombia, Peru and Mexicoto what Lucas (1973) refers to as "two data points"-the developed countries and the inflationary countries of Argentina and Paraguay.3 In addition, the cases of Brazil *Brown University. This paper was completed while I was a visiting scholar at the International Finance Division of the Board of Governors of the Federal Reserve System. I am grateful for the use of computer facilities at CEPAL, Brown University, and the Board of Governors, and for comments from Roque Fernandez, Robert Gregory, Herschel Grossman, Dale Henderson, Robert King and Jerome Stein, though I alone bear full responsibility for the study. The analysis and conclusions of this paper should not be interpreted as representing the views of the Board of Governors of the Federal Reserve System or members of its staff. More extensive statistical results are contained in my International Finance Discussion Paper. 'For a review of existing work, see the paper by Roque Fernandez and myself. Summaries of the structuralist view may be found in Roberto Campos, Enrique Sierra, and Susan Wachter, among others. 2Lucas uses the variance of detrended nominal demand as a measure of its predictability because he assumes that variable can be characterized by a random walk with trend. With a more complicated money supply process, predictability of inflation becomes the key variable in the reaction to unexpected inflation. 3It is worth noting that there is a slight inverse relationship between the coefficient of unexpected inflation and the variability of inflation within Lucas' developed country "data point," tending to confirm his hypothesis. Both within Lucas' (1973) sample and in Latin America, as discussed in Fernandez and myself,
01 Jan 1978
TL;DR: In the industrialised countries of Western Europe the change in conditions (between 1968 and 1970 in each country discussed here) has the character of a break; in the USA and Canada the development begins earlier (in the mid 1960s) and builds up more gradually.
Abstract: The low level of industrial conflict in post-war Europe was paralleled by annual wage inflation rates seldom above 10 per cent and price inflation typically below 5 per cent and the rise in strike activity in the late 1960s was accompanied by inflation rates at a noticeably higher level. The North American experience bears some similarities: conflictuality and inflation have been higher in the 1970s than at any previous time since the Second World War. But there are important differences. In the industrialised countries of Western Europe the change in conditions (between 1968 and 1970 in each country discussed here) has the character of a break; in the USA and Canada the development begins earlier (in the mid 1960s) and builds up more gradually.
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TL;DR: In this paper, the authors examine the real effects of anticipated inflation in an economy that has fully adapted to inflation in the sense that public institutions are fully attuned to inflation (or inflation proof), the same is true of private institutions, and current and future inflation is fully reflected in inherited contracts.
Abstract: The organization of the paper is simple. We start by examining the real effects of anticipated inflation in an economy that has fully adapted to inflation. In particular, in this economy: (i) public institutions are fully attuned to inflation (or inflation proof), (ii) the same is true of private institutions, (iii) current and future inflation is fully reflected in inherited contracts, and (iv) future inflation is fully reflected in contracts for the future. After we have discussed the effects of anticipated inflation in this environment, we examine the real effects of inflation that arise as the assumptions (i) to (iv) are dropped one after the other. The effects cumulate in the sense that those present in the economy that has fully adapted to inflation are also present in economies with non-inflation proof institutions, and so on.