Hostname: page-component-7479d7b7d-68ccn Total loading time: 0 Render date: 2024-07-11T12:07:12.687Z Has data issue: false hasContentIssue false
  • English
  • Français

Inflationary Momentum and Stabilization Policy: A US Perspective

Published online by Cambridge University Press:  28 November 2008

William L. Hemphill
William L. Hemphill
Affiliation:
International Monetary Fund
Get access Rights & Permissions [Opens in a new window]

Abstract

The inflationary experience of the industrial countries in recent years is explained in terms of institutional and structural changes promoting wage-price momentum. Developments such as the increasing extent of indexation of incomes and flexibility of exchange rates tend to result in downward rigidity of the rate of change of prices and wages. In the extreme, this is seen to lead to stagflation as the normal economic condition, and to the ineffectiveness of exchange rate changes for adjusting external imbalances. While output and employment continue to respond to the application of monetary and fiscal policies, the wage-price mechanism lies increasingly beyond the reach of these conventional tools. It is argued that the sufficiency of stabilization policy is restored, as a medium-term tendency, to the extent that the inflation-sustaining links between wage and price changes can be systematically restrained, such as could follow from a permanent tax-based incomes policy.

Type
Articles
Information
Journal of Public Policy , Volume 2 , Issue 3 , August 1982 , pp. 193 - 215
Copyright
Copyright © Cambridge University Press 1982

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

REFERENCES

Artus, J. and Turner, A. (1978) Measures of potential output in manufacturing for ten industrial countries, 1955–1980. Department Memorandum No.78/41, 12 May.Google Scholar
Bain, G. and Price, R. (1980) Profiles of Union Growth: A Comparative Statistical Portrait of Eight Countries. Oxford: Basil Blackwell.Google Scholar
Barro, R. and Fischer, S. (1976) Recent developments in monetary theory, Journal of Monetary Economics, 04, 133–67.CrossRefGoogle Scholar
Bernstein, E. (1974). Indexing money payments in a large and prolonged inflation. In Giersch, H. et al. , Essays on Inflation and Indexation, Washington DC: American Enterprise Institute for Public Policy Research.Google Scholar
Bond, M. (1980) Exchange rates, inflation, and vicious circles, IMF Staff Papers, 12, 679–711.CrossRefGoogle Scholar
Branson, W. and Rotemberg, J. (1980) International adjustment with wage rigidity, European Economic Review, 05, 309–32.CrossRefGoogle Scholar
Braun, A. (1976) Indexation of wages and salaries in developed economies, IMF Staff Papers, 03, 226–71.CrossRefGoogle Scholar
Cagan, P. (1974) The Hydra-Headed Monster: the Problem of Inflation in the United States. Washington DC: American Enterprise Institute for Public Policy Research.Google Scholar
Corden, W. and Oppenheimer, P. (1974) Basic implications of the rise in oil prices. Staff Paper No. 6. London: Trade Policy Research Center,08.Google Scholar
Dean, J. (1980). The dissolution of the Keynesian consensus, The Public Interest, special issue, 19–34.Google Scholar
Dildine, L. and Sunley, E. (1978) Administrative problems of tax-based incomes policies, Brookings Papers on Economic Activity, (2), 363–389.CrossRefGoogle Scholar
Fischer, S. (ed.) (1980) Rational Expectations and Economic Policy. Chicago: University of Chicago Press.Google Scholar
Friedman, M. (1974) Monetary correction. In Giersch, H. et al. ,Essays on Inflation and Indexation, Washington DC: American Enterprise Institute for Public Policy Research.Google Scholar
Goldstein, M. (1977) Downward price inflexibility, ratchet effects, and the inflationary impact of import price changes: some empirical evidence, IMF Staff Papers, 11, 569–612.CrossRefGoogle Scholar
Gordon, R. (1975) The impact of aggregate demand on prices, Brookings Papers on Economic Activity, (3), 613–70.CrossRefGoogle Scholar
Gordon, R. (1977a) The theory of domestic inflation, American Economic Review, 02, 128–34.Google Scholar
Gordon, R. (1977b) World inflation and monetary accommodation in eight countries, Brookings Papers on Economic Activity, (2), 409–68.CrossRefGoogle Scholar
Gordon, R. (1978) What can stabilization policy achieve? American Economic Review, 05, 335–41.Google Scholar
Gramlich, E. (1979) Macro policy responses to price shocks, Brookings Papers on Economic Activity, (1), 125–66.CrossRefGoogle Scholar
Gray, J. (1976) Wage indexation: a macroeconomic approach, Journal of Monetary Economics, 04, 221–35.CrossRefGoogle Scholar
Knobel, A. (1981) Wage indexation in an open economy. In Flanders, J. and Razin, A. (eds.), Development in an Inflationary World, New York: Academic Press.Google Scholar
Lerner, A. (1981) A mutation in the aggregate price and employment equilibrating mechanism of a market economy. In Flanders, J. and Razin, A. (eds.), Development in an Inflationary World, New York: Academic Press.Google Scholar
McCallum, B. (1979) The current state of the policy ineffectiveness debate, American Economic Review, 05, 240–5.Google Scholar
McCallum, B. (1980). Rational expectations and macroeconomic stabilization policy: an overview, Journal of Money, Credit and Banking, 11, Part 2, 716–46.CrossRefGoogle Scholar
Modigliani, F. and Papademos, L. (1975) Targets for monetary policy in the coming year, Brookings Papers on Economic Activity, (1), 141–65.CrossRefGoogle Scholar
Nordhaus, W. (1972). The worldwide wage explosion, Brookings Papers on Economic Activity, (2), 431–64.CrossRefGoogle Scholar
Nordhaus, W. (1976) Inflation theory and policy, American Economic Review, 05, 59–64.Google Scholar
Okun, A. (1975) Inflation: its mechanics and welfare costs, Brookings Papers on Economic Activity, (2), 351–90.CrossRefGoogle Scholar
Okun, A. (1981) Prices and Quantities: A Macroeconomic Analysis. Washington DC: The Brookings Institution.Google Scholar
Perry, G. (1975a) Policy alternatives for 1974, Brookings Papers on Economic Activity, (1), 222–35.CrossRefGoogle Scholar
Perry, G. (1975b) Determinants of wage inflation around the world, Brookings Papers on Economic Activity, (2), 403–35.CrossRefGoogle Scholar
Perry, G. (1978) Slowing the wage-price spiral: the macroeconomic view, Brookings Papers on Economic Activity, (2), 259–91.CrossRefGoogle Scholar
Perry, G. (1980). Inflation in theory and practice, Brookings Papers on Economic Activity, (1), 207–57.CrossRefGoogle Scholar
Piore, M. (ed.) (1979) Unemployment and Inflation: Institutionalist and Structuralist Views. White Plains, NY: M. E. Sharpe.Google Scholar
Rees, A. (1978) New policies to fight inflation: sources of skepticism, Brookings Papers on Economic Activity, (2), 453–77.CrossRefGoogle Scholar
Ruben, G. (1982) Organized labor in 1981: a shifting of priorities, Monthly Labor Review, 01, 21–8.Google Scholar
Sachs, J. (1979) Wages, profits, and macroeconomic adjustment: a comparative study, Brookings Papers on Economic Activity, (2), 269–319.CrossRefGoogle Scholar
Samuelson, P. (1976) Economics, tenth edition. New York: McGraw-Hill.Google Scholar
Schultze, C. (1959) Recent inflation in the United States. Study Paper No. 1 in US Congress, Joint Economic Committee, Employment, Growth, and Price Levels, Washington DC: US Government Printing Office.Google Scholar
Seidman, L. (1978) Tax-based incomes policies, Brookings Papers on Economic Activity, (2), 301–48.CrossRefGoogle Scholar
Seidman, L. (1981) Equity and tradeoffs in a tax-based incomes policy, American Economic Review, 05, 295–300.Google Scholar
Sheifer, V. (1979) Cost-of-living adjustment: keeping up with inflation?, Monthly Labor Review, 06, 14–17.Google Scholar
Solomon, R. (1977) Dialogue on the issues. In Hinshaw, R. (ed.), Stagflation: An International Problem, New York: Marcel Dekker.Google Scholar
Solow, R. (1980) What to do (macroeconomically) when OPEC comes. In Fischer, S. (ed.), Rational Expectations and Economic Policy, Chicago: University of Chicago Press.Google Scholar
Tobin, J. (1980) Stabilization policy ten years after, Brookings Papers on Economic Activity, (1), 19–71.CrossRefGoogle Scholar
Tobin, J. (1981) Diagnosing inflation: a taxonomy. In Flanders, J. and Razin, A. (eds.), Development in an Inflationary World, New York: Academic Press.Google Scholar
Thorp, W. and Quandt, R. (1959) The New Inflation. New York: McGraw-Hill.Google Scholar
US Bureau of Labor Statistics (1973) Directory of National Unions and Employee Associations. Washington DC: US Government Printing Office.Google Scholar
US Congressional Budget Office [ [L.De Milner ] (1981) Indexing with the Consumer Price Index: Problems and Alternatives. Washington DC: US Government Printing Office.Google Scholar
US Council of Economic Advisors (1978) Economic Report of the President, January 1978. Washington DC: US Government Printing Office.Google Scholar
US Council of Economic Advisors (1982) Economic Report of the President, February 1982. Washington DC: US Government Printing Office.Google Scholar
Wallich, H. and Weintraub, S. (1971) A tax-based incomes policy, Journal of Economic Issues, 06, 1–19.CrossRefGoogle Scholar