Showing papers on "Inflation published in 1987"
TL;DR: In this article, an equilibrium theory for the political budget cycle is proposed, and the welfare implications of proposals to mitigate the cycle and the effects of altering the electoral structure are considered.
Abstract: Political business cycle theories generally rely on nominal rigidities and voter myopia. This paper offers an equilibrium theory that preserves some basic insights from earlier models, though with significant refinements. The "political budget cycle" emphasized here is in fiscal policy rather than output and inflation; it arises via a multidimensional signal process. One can consider the welfare implications of proposals to mitigate the cycle and the effects of altering the electoral structure. Copyright 1990 by American Economic Association.
1,427 citations
TL;DR: In this paper, a model of endogenous price adjustment under money growth is presented, where firms follow (s,S) pricing policies, and price revisions are imperfectly synchronized, and the connection between firm price adjustment and relative price variability in the presence of monetary growth is investigated.
Abstract: A model of endogenous price adjustment under money growth is presented. Firms follow (s,S) pricing policies, and price revisions are imperfectly synchronized. In the aggregate, price stickiness disappears, and money is neutral. The connection between firm price adjustment and relative price variability in the presence of monetary growth is also investigated. The results contrast with those obtained in models with exogenous fixed timing of price adjustment.
669 citations
TL;DR: For the period 1860 to 1939, the simple correlation of the U.S. commercial paper rate with the contemporaneous inflation rate is −0.17 as discussed by the authors and the corresponding correlation for the period 1950 to 1979 is 0.71.
424 citations
TL;DR: The authors make a sharp distinction between equilibrium and actual unemployment, and make a distinction between the two types of economic variables, i.e., demand and supply changes, leading to deviations of actual unemployment from equilibrium and these deviations in turn trigger changes in the rate of inflation, which lead eventually to areturn to equilibrium.
392 citations
TL;DR: This article defined consensus as the degree of agreement among point predictions aimed at the same target by different individuals and uncertainty as the diffuseness of the corresponding probability distributions and showed that these measures of consensus and uncertainty are on the whole positively correlated.
Abstract: We define "consensus" as the degree of agreement among point predictions aimed at the same target by different individuals and "uncertainty" as the diffuseness of the corresponding probability distributions. This distinction is made operational with the aid of the NBER-ASA survey data on matched point and probabilistic forecasts of inflation and the rate of change in gross national product. The means of the two sets of forecasts agree closely. Standard deviations of point forecasts tend to understate uncertainty as measured by standard deviations of the predictive probability distributions. However, these measures of consensus and uncertainty are on the whole positively correlated. There is evidence that expectations of higher inflation generate greater uncertainty about inflation. Tests also favor the hypothesis that a rise in inflation uncertainty has adverse effects on real growth.
330 citations
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TL;DR: In this article, the authors present and test a positive theory of monetary and fiscal policy, where the government chooses the rates of taxation and inflation to minimize the present value of the social cost of raising revenue given exogenous expenditure and an intertemporal budget constraint.
Abstract: This paper presents and tests a positive theory of monetary and fiscal policy The government chooses the rates of taxation and inflation to minimize the present value of the social cost of raising revenue given exogenous expenditure and an intertemporal budget constraint The theory implies that nominal interest rates and inflation are random walks It also implies that nominal interest rates and inflation move together with tax rates United States data from 1952 to 1985 provide some support for the theory
282 citations
TL;DR: In this paper, the authors examined the ability of a well-diversified portfolio of real estate to hedge against anticipated and unanticipated inflation and found that the majority exhibit this negative relationship.
Abstract: The ability of assets to protect an investor from purchasing power risk due to inflation has received a good deal of attention in the literature recently. The focus of much of this research has been on the properties of common stocks as inflation hedges. Bodie [1976] finds that the real return on equity is negatively related to both anticipated and unanticipated inflation; a similar result is obtained by Fama and Schwert [1977]. Bernard and Frecka [1983] examine individual common stock returns and find that the majority exhibit this negative relationship. This paper uses similar logic to examine the ability of a well-diversified portfolio of real estate to hedge against anticipated and unanticipated inflation.
226 citations
TL;DR: In this paper, it is shown that two sources of time inconsistency can be removed by a particular method of debt management, involving bot h nominal and indexed government bonds of various maturities.
Abstract: The problem of time inconsistency arises from two different sources. First, as shown by Guillermo A. Calvo (1978), the re is an incentive for each government to engage in an initial unanti cipated inflation. Second, as discussed by Robert E. Lucas and Nancy L. Stokey (1983), there is an incentive for each government to deviat e from the path of taxes announced by the preceding government. In th is paper, it is shown that these two sources of time inconsistency ca n be removed by a particular method of debt management, involving bot h nominal and indexed government bonds of various maturities. Copyright 1987 by The Econometric Society.
194 citations
TL;DR: This article reviewed the debate about the effects of IMF-sponsored stabilization programs in the Third World and concluded that IMF programs are associated with insignificant changes in the current account, significant improvements in the overall balance of payments, increases in inflation, mixed effects on growth, and a strong and consistent pattern of reduction in labor share of income.
192 citations
TL;DR: The authors found that retrospective assessments of economic conditions do not greatly influence economic forecasts and that economic forecasts are shaped by personal economic circumstances and partisan assessments of governmental performance, and the political implications of such findings are discussed.
Abstract: Recently, a great deal of attention has been focused on the impact of prospective evaluations of the economy on vote choice. Yet, little attention has been focused on the actual process whereby such evaluations are formed. This paper employs panel data to test a model of the formation of prospective evaluations of inflation and unemployment. Our findings indicate that retrospective assessments of economic conditions do not greatly influence economic forecasts. Instead, economic forecasts are shaped by personal economic circumstances and partisan assessments of governmental performance. The political implications of such findings are discussed.
168 citations
TL;DR: In this paper, the authors investigated the determinants of intramarket price variability and replicates some previous crosssectional tests for the United Kingdom and found that the strength of this relationship appears to be inversely related to the level of industry concentration.
Abstract: Relative price variability has been studied at the cross-sectional (intermarket) level. This paper addresses the equally important phenomenon of intramarket variability: the dispersion of commodity price movements around the industry average. Using quarterly price data for 80 disaggregated commodity groups in the United Kingdom from 1974 to 1984, the paper investigates the determinants of intramarket price variability and replicates some previous crosssectional tests for the United Kingdom. Intermarket price variability is found to be positively related to inflation, which confirms previous results for the United States and other countries. Intramarket variability is found to be positively related to the average (market) rate of price change, but the strength of this relationship appears to be inversely related to the level of industry concentration. These results generally support the propositions and findings reported by Stigler and Kindahl.
TL;DR: In this article, a finite element formulation for stress analysis under axisymmetric conditions is presented for free and constrained inflation of a flat circular membrane, the latter with respect to inflation against a circular cylindrical surface, a 60 degree conical surface, and a horizontal plate.
Abstract: Thermoforming of a heated polymeric membrane by pressure inflation against a relatively cold mould surface presents a class of large deformation stress analysis problems in which account must be taken of the progressively changing boundary conditions caused by the sheet coming into contact with the mould surface. As a first step towards solving the general problem, the paper presents a finite element formulation for stress analysis under axisymmetric conditions. Analysis results are presented for free and constrained inflation of a flat circular membrane, the latter with respect to inflation against (a) a circular cylindrical surface, (b) a 60 degree conical surface, and (c) a horizontal plate. As reasonable physical approximations, the material is considered to be purely elastic while the contact conditions are idealized to be either friction-less or non-slipping. Analysis results are compared with those obtained by experiments on rubber membranes.
TL;DR: In this paper, a positive theory of monetary and fiscal policy is presented and tested, which implies that nominal interest rates and inflation are random walks and that tax rates and interest rates move together with tax rates.
TL;DR: In this paper, the authors examine presidential influence on the Federal Reserve by testing for an election cycle in money growth and find that the effects of presidential re-election on monetary policy are significant.
Abstract: Traditional macro-economic models of Federal Reserve (Fed) behavior typically assume that the Fed enjoys a well defined objective function based on social welfare, and generally predict counter-cyclical monetary policy. The increasing observation of procyclical monetary policy has led many researchers to investigate new models of Fed behavior. Several recent papers imply that procyclical Fed behavior is due to a lack of political accountability. Friedman [7], Toma [23] and Shughart and Tollison [21] all attribute considerable bureaucratic discretion to the Fed and seek to explain monetary policy by examining typical bureaucratic objectives.' Other papers, such as Pierce [19; 20], Weintraub [26] and Kane [10; 11] argue that the Fed operates in an arena filled with political constraints that cause sub-optimal monetary policy, but these constraints are not modeled explicitly. One possible political constraint on Fed behavior is the incumbent president's desire for re-election. In the Political Business Cycle (PBC) literature, presidential re-election opportunities are enhanced by the production of a precise set of inflation and unemployment outcomes leading up to the election. Thus, to the extent that presidents desire cyclical macro-economic outcomes, there will be Executive pressure on the Fed to create or accommodate such outcomes. The effect this pressure will have on Fed policy is ultimately an empirical question, but most models deal with it by assumption. Traditional macro modeling assumes a zero effect, while the PBC models implicitly assume that a favorable election cycle is a primary goal of all economic policymakers. This paper examines presidential influence on the Federal Reserve by testing for an election cycle in money growth. The major result is the identification of a regular 16 quarter cycle in money growth corresponding with presidential elections. This cyclical effect is found to be stable over time and significant under a wide range of model specifications. Further, when the cyclical component of money growth is used to simulate a simple macro model, it produces a classic political business cycle in inflation and real output growth.
TL;DR: In this article, a positive theory of monetary and fiscal policy is presented and tested, which implies that nominal interest rates and inflation are random walks and that tax rates and interest rates move together with tax rates.
TL;DR: The stochastic approach to index number theory views each commodity price change as an independent observation on the underlying rate of inflation so that inflation can be estimated by averaging over all the prices as mentioned in this paper.
Abstract: The stochastic approach to index number theory views each commodity price change as an independent observation on the underlying rate of inflation so that inflation can be estimated by averaging over all the prices. This article extends the approach by (a) allowing for sustained changes in relative prices, (b) showing the link with Divisia index numbers, and (c) deriving standard errors for the inflation estimates. The results are illustrated with Australian data.
TL;DR: In this paper, the authors argue that the relationship between price variability and inflation in high-inflation countries should be estimated on a frequent basis and that rational expectations are the appropriate formulation for predicting inflation.
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TL;DR: In this article, the authors present and test a positive theory of monetary and fiscal policy, where the government chooses the rates of taxation and inflation to minimize the present value of the social cost of raising revenue given exogenous expenditure and an intertemporal budget constraint.
Abstract: This paper presents and tests a positive theory of monetary and fiscal policy The government chooses the rates of taxation and inflation to minimize the present value of the social cost of raising revenue given exogenous expenditure and an intertemporal budget constraint The theory implies that nominal interest rates and inflation are random walks It also implies that nominal interest rates and inflation move together with tax rates United States data from 1952 to 1985 provide some support for the theory
TL;DR: In this paper, the results of an exceptionally good natural experiment that has been provided by Canada and the U.S. over the past thirty-five years have been analyzed and the primary conclusion emerging from their analysis of this phenomenon is that tax policies can have a potent impact on private savings behavior.
TL;DR: This article evaluated the performance of three groups of models of the inflation process: Expectation models with instantaneous market clearing, monetarist models, and expectations-augmented Phillips curve models.
Abstract: The forecast performances of three groups of models of the inflation process are evalu-ated in this paper: ra tional expectations models with instantaneous market clearing, monetarist models , and expectations-augmented Phillips curves. The dynamic simulations performed for the intervals between 1977 and 1984 are somewhat discouraging for all three theories. The variation in forecasting performance within model groups often exc eeded the variation in performance across model groups. Nevertheless, the Philli ps curve formulation rarely performed worse than the other two models, and in th e 1981 to 1984 period it performed substantially better than the alternative mod els of inflation. Copyright 1987 by MIT Press.
TL;DR: In this paper, the effect of changes in the average rate and in the progressivity of direct taxes on the level of wages and the extent to which cost-of-living increases are transmitted to wages are considered for a unionized labour market.
TL;DR: In this paper, the authors compared the path of consumer price rises with data for the incidence of political change and the frequency of military regimes from 1946 to 1984 for the following countries: Argentina, Brazil, Chile, Colombia, Mexico, Peru, Uruguay and Venezuela.
Abstract: The path of consumer price rises is compared with data for the incidence of political change and the frequency of military regimes from 1946 to 1984 for the following countries: Argentina, Brazil, Chile, Colombia, Mexico, Peru, Uruguay and Venezuela. A highly significant connection between the frequency of military government and the level of inflation is found. This appears to be due to two other significant results: (i) The military regimes are relatively unstable ones. (ii) Inflation normally turns upwards under civilian and downwards under military regimes, i.e., the military regimes are relatively strong in fighting inflation. Finally, it is demonstrated that few regimes survive a spell of hyperinflation.
TL;DR: The authors studied the dynamic behavior of changes in productivity, wages, and prices in the U.S., Japan, and an aggregate called "Europe" consisting of eleven European economies and found that real wages in Europe and Japan were too flexible rather than too rigid, and that much of the increase in wage gap indexes in Europe during 1968-70 and in Japan in 1973-74 can be interpreted as autonomous wage push.
TL;DR: In this paper, the issue of whether permanent primary budget deficits have to be monetized is re-examined in a simple monetary model, hybrid of the Sidrauski and overlapping-generations frameworks, in which intergenerational effects are generated by the arrival of new infinitely-lived cohorts.
TL;DR: In this article, the authors present a more complete, yet still parsimonious, explanation of macroeconomic policy failure and success during the "stagflation" period of the 1970s, focusing on four countries, Austria, Great Britain, Sweden and West Germany.
Abstract: The paper aims at a more complete, yet still parsimonious, explanation of macro-economic policy failure and success during the ‘stagflation’ period of the 1970s. Focusing on four countries, Austria, Great Britain, Sweden and West Germany, it is shown that both runaway inflation and rising unemployment could be avoided whenever it was possible to achieve a Keynesian concertation between fiscal and monetary expansion on the one hand and union wage restraint on the other. The actual policy experiences of the four countries are then explained in terms of the linkage between a ‘coordination game’ played between the government and the unions in which macro-economic outcomes are determined, and a politics game in which the government tries to anticipate the electoral responses of different voter strata to these outcomes.
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Abstract: The analysis focuses on the government budget constraint and the resolution of inconsistent implications of different policy instruments under that constraint. We show how, under floating exchange rates, external shocks or internal structural reforms may cause jumps in inflation and the exchange rate through their impact on the government budget. In order to achieve a sustainable reduction in inflation an exchange rate freeze or crawling peg is shown to require restrictions not only on domestic credit, but also on the rate of increase in interest-bearing public debt. We endogenize regime collapse by introducing rational speculation against the central bank, and show that if an exchange rate freeze collapses, post-collapse inflation will exceed the rate prevailing before the freeze started.
TL;DR: In this article, a stochastic general equilibrium model is constructed which is capable of examining the covariance properties between inflation and unemployment, both conditioned and unconditioned upon the state of the economy.
TL;DR: In this paper, empirical evidence relating the announcement effects of US money supply and inflation (CPI and PPI) to Eurocurrency interest rates and the foreign currency markets (both spot and forward) for seven industrial countries over the period 1977-1982 was presented.