Theories of Inflation (Cambridge Surveys of Economic by Helmut Frisch

By Helmut Frisch

A survey of the recent theories of inflation that experience constructed during the last twenty years based on the inflationary pressures skilled by way of Western international locations examines the transferring debate from explaining inflation as a "causal" method to explaining its elevate due to regularly altering expectancies.

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At the beginning of the 1970s there was a tendency toward uniformity in the inflation rates in various countries. After the 1974-5 recession, however, the variation in inflation rates among countries increased. Expectations and inflation One of the major differences between the theories of inflation developed in the last fifteen years and the traditional theories (as discussed in Chapter 7) is the role of inflationary expectations. Although Keynes, Hicks, Lange, and others have discussed expectations, only recently the formation of expectations has been extensively investigated by the current models of inflation.

6, which shows a Phillips curve for an individual labor market. The Phillips curve for the total labor market (the macro Phillips curve) follows from the aggregation of the individual functions. The distribution of unemployment and vacancies over the individual labor markets determines the position of the macro Phillips curve. According to the Phillips-Lipsey model, the rate of wage inflation is explained by excess demand in the labor market. The latter, which is not directly observable, is approximated by the The Phillips curve 41 rate of unemployment and an auxiliary construction, the X-U relationship.

Construction of the Phillips curve When the wage adjustment equation and the X~U relationship are combined, a Phillips curve for an individual labor market results. 6, which shows a Phillips curve for an individual labor market. The Phillips curve for the total labor market (the macro Phillips curve) follows from the aggregation of the individual functions. The distribution of unemployment and vacancies over the individual labor markets determines the position of the macro Phillips curve. According to the Phillips-Lipsey model, the rate of wage inflation is explained by excess demand in the labor market.

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