Skip to main content

Advertisement

SpringerLink
Log in

Optimal demand policies against stagflation

  • Published:
Review of World Economics Aims and scope Submit manuscript

Zusammenfassung

Optimale Nachfragepolitik zur BekÄmpfung der Stagflation. — Der Aufsatz beschÄftigt sich mit der Wahl einer optimalen Gesamtnachfrage-Politik als Antwort auf einen inflationÄren Schock — optimal in dem Sinne, da\ die Volkswirtschaft zur VollbeschÄftigung und PreisstabilitÄt auf einen Pfad zurückgeführt wird, der die sozialen Kosten minimiert. Es wird die Ansicht vertreten, da\ die Kosten eines gegebenen Stabilisierungspfades proportional sind zu den über die Zeit aufsummierten Abweichungen der Inflationsrate und der Arbeitslosenquote von den langfristigen Zielwerten. Auf der Grundlage einer sehr allgemeinen Formulierung der Phillips-Kurve wird die optimale wirtschaftspolitische Antwort auf einen Inflationsschock analysiert und gezeigt, da\ sie gewöhnliche »Turnpike«-Eigenschaften besitzt. Dieser Ansatz wird veranschaulicht, indem er auf die USA für den Zeitraum 1971–1975 angewandt wird, wobei die SensitivitÄt des optimalen Pfades in bezug auf alternative Wohlfahrts-Bewertungen und Ansichten hinsichtlich der Natur des Trade-off untersucht wird.

Résumé

Les politiques de demande optimum contre la stagflation. — Cet article a pour sujet la selection d’une politique de demande agrégée optimum en réponse à un choc — optimum de manière qu’elle reconduit l’économie au plein emploi et à la stabilité de prix le long d’un sentier d’inflation-chÔmage minimisant des frais sociaux de «welfare». Nous arguons que les frais du chaque sentier donné de stabilisation peuvent Être pris comme proportioneis à l’excès d’inflation et de chÔmage au-dessus du but à long terme, cumulé sur le sentier. En se fiant à une expression très générale de la «courbe de Phillips» l’article analyse et démontre la réponse de politique optimum à un choc inflationniste pour exhiber des simples «barrières» propriétés. L’approche est illustrée par l’application sur les E. U. pour la période de 1971 à 1975. Elle explore la sensibilité du sentier optimum aux évaluations alternatives de «welfare» et aux vues de la nature du «trade-off».

Resumen

Políticas óptimas de demanda contra la estagflación. — Este artículo se ocupa de la selección de una política de demanda agregada óptima en respuesta a un «shock» óptimo inflacionario en el sentido que devuelve el pleno empleo y la estabilidad de precios a la economía a través de una trayectoria de inflación-desempleo minimizando los costos sociales de bienestar. Se argumenta que el costo de cualquier trayectoria de estabilización dada puede tomarse como proporcional al exceso de inflación y desempleo por sobre la meta de largo plazo, acumulado a través de la trayectoria. Basándose sobre una formulación muy general de la «curva de Phillips» se analiza la respuesta de política óptima a un «shock» inflacionario y se muestra que exhibe propiedades simples de Camino de portazgo. El enfoque se ilustra aplicándolo a los EEUU para el período 1971–75, investigando la sensibilidad de la trayectoria óptima con respecto a evaluaciones de bienestar alternativas y apreciaciones sobre la naturaleza del «trade-off».

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

References

  • Barro, Robert J., andStanley Fischer, “Recent Developments in Monetary Theory”,Journal of Monetary Economics, Vol. 2, Amsterdam, 1976, pp. 133–167.

    Article  Google Scholar 

  • Blinder, Alan S., andH. Y. Esaki,Macroeconomic Activity and Income Distribution in the Postwar United States, Princeton University, Princeton, N.J., 1977, unpubl.

    Google Scholar 

  • Brookings Papers on Economic Activity, Washington, D.C., 1978, 2.

  • Cagan, Phillip, “The Monetary Dynamics of Hyperinflation”, in: Milton Friedman (Ed.),Studies in the Quantity Theory of Money, Chicago, Ill., 1956, pp. 23–117.

  • Cagan, Phillip, “The Reduction of Inflation and the Magnitude of Unemployment”,Contemporary Economic Problems, Vol. 2, Washington, D.C., 1977, pp. 41–50.

    Google Scholar 

  • Cross, Rodney, andDavid Laidler, “Inflation, Excess Demand and Expectations in Fixed Exchange Rate Open Economies: Some Preliminary Empirical Results”, in:Inflation in the World Economy, Studies in Inflation, 4, Manchester, 1976, pp. 221–258.

    Google Scholar 

  • De Menil, George, andSurjit S. Bhalla, “Direct Measurement of Popular Price Expectations”,The American Economic Review, Vol. 65, Menasha, Wisc., 1975, pp. 169–180.

    Google Scholar 

  • Eckstein, Otto (Ed.),The Econometrics of Price Determination, A Conference Sponsored by the Board of Governors of the Federal Reserve System and the Social Science Research Council, Washington, D.C., 1972.

  • Fair, Ray C., “On the Solution of Optimal Control Problems as Maximization Problems”,Annals of Economic and Social Measurement, Vol. 3, New York, 1974, pp. 135–154.

    Google Scholar 

  • Feige, Edgar L., andDouglas K. Pearce, “Economically Rational Expectations: Are Innovations in the Rate of Inflation Independent of Innovations in Measures of Monetary and Fiscal Policy ?”The Journal of Political Economy, Vol. 84, Chicago, Ill., 1976, pp. 499–522.

    Article  Google Scholar 

  • Feldstein, Martin S.,The Private and Social Costs of Unemployment, National Bureau of Economic Research, Working Paper, No. 223, New York, January 1978.

  • Fischer, Stanley, “Long-Term Contracts, Rational Expectations, and the Optimal Money Supply Rule”,The Journal of Political Economy, Vol. 85, Chicago, Ill., 1977. pp. 191–205.

    Article  Google Scholar 

  • —, andFranco Modigliani, “Towards an Understanding of the Real Effects and Costs of Inflation”,Weltwirtschaftliches Archiv, Vol. 114, 1978, pp. 810–833.

    Article  Google Scholar 

  • Friedman, Benjamin M.,Rational Expectations Are Really Adaptive after All, Harvard University, Cambridge, Mass., 1975, unpubl.

    Google Scholar 

  • Friedman, Milton, “The Role of Monetary Policy”,The American Economic Review, Vol. 58, Menasha, Wisc., 1968, pp. 1–17.

    Google Scholar 

  • -, “A Theoretical Framework for Monetary Analysis”, in: Robert J. Gordon (Ed.),Milton Friedman’s Monetary Framework: A Debate with His Critics, Chicago, London, 1974, pp. 1–62.

  • Gordon, Robert J., “The Welfare Cost of Higher Unemployment”,Brookings Papers on Economic Activity, Washington, D.C., 1973, pp. 133–195.

  • Gramlich, Edward M., “The Distributional Effects of Higher Unemployment”,Brookings Papers on Economic Activity, Washington, D.C., 1974, pp. 293–341.

  • -, “The Optimal Timing of Unemployment in a Recession”,ibid., 1975, pp. 167–181. Grunberg, Emile, and Franco Modigliani, “The Predictability of Social Events”,The Journal of Political Economy, Vol. 62, Chicago, Ill., 1954, pp. 465–478.

  • Hall, Robert E., “The Rigidity of Wages and the Persistence of Unemployment”,Brookings Papers on Economic Activity, Washington, D.O., 1975, pp. 301–335.

  • -, “The Phillips Curve and Macroeconomic Policy”, in: Karl Brunner and Allan H. Meltzer (Eds.),The Phillips Curve and Labor Markets, Journal of Monetary Economics, Vol. 2, Amsterdam, 1976, Supplement, pp. 127–141.

  • -,Expectation Errors, Unemployment, and Wage Inflation, 1978, unpubl.

  • Koopmans, Tjalling C., “Objectives, Constraints, and Outcomes in Optimal Growth Models”,Econometrica, Vol. 35, New Haven, Conn., 1967, pp. 1–15.

    Article  Google Scholar 

  • Laidler, David, andMichael Parkin, “Inflation: A Survey”,The Economic Journal, Vol. 85, Cambridge, 1975, pp. 741–809.

    Article  Google Scholar 

  • Lipsey, Richard G., “The Relation between Unemployment and the Rate of Change of Money Wage Rates in the United Kingdom, 1862-1957: A Further Analysis”,Economica, N.S., Vol. 27, London, 1960, pp. 1–31.

    Article  Google Scholar 

  • Lucas, Robert E., Jr. [1972 a], “Econometric Testing of the Natural Rate Hypothesis”, in: Otto Eckstein (Ed.),The Econometrics of Price Determination, A Conference Sponsored by the Board of Governors of the Federal Reserve System and the Social Science Research Council, Washington, D.C., 1972, pp. 50–59.

  • — [1972b], “Expectations and the Neutrality of Money”,Journal of Economic Theory, Vol. 4, New York, London, 1972, pp. 103–124.

    Article  Google Scholar 

  • -, “Econometric Policy Evaluation: A Critique”, in: Karl Brunner and Allan H. Meltzer (Eds.),The Phillips Curve and Labor Markets, Journal of Monetary Economics, Vol. 2, Amsterdam, 1976, Supplement, pp. 19–46.

  • Modigliani, Franco, “Long-Run Implications of Alternative Fiscal Policies and the Burden of the National Debt”,The Economic Journal, Vol. 71, London, 1961, pp. 730–755.

    Article  Google Scholar 

  • —, “The Monetarist Controversy or, Should We Forsake Stabilization Policies ?”The American Economic Review, Vol. 67, Menasha, Wisc., 1977, pp. 1–19.

    Google Scholar 

  • -, andLucas Papademos, “Targets for Monetary Policy in the Coming Year”,Brookings Papers on Economic Activity, Washington, D.C., 1975, pp. 141–165.OECD (Organisation for Economic Co-operation and Development,Towards Full Employment and Price Stability, A Report to the OECD by a Group of Independent Experts, Paris, 1977.

  • Okun, Arthur M., “Efficient Disinflationary Policies”,The American Economic Review, Vol. 68, Menasha, Wisc., 1978,Papers and Proceedings, pp. 348–352.

    Google Scholar 

  • Papademos, Lucas [1977 a],Optimal Aggregate Employment Policy, Massachusetts Institute of Technology, Cambridge, Mass., 1977, Ph. D. diss., unpubl.

    Google Scholar 

  • - [1977b],Welfare Criteria, Uncertain Supply Shocks, and Optimal Anti-Inflation Employment Policy, Paper Pres. at the 6th NBER Conference on Control and Economics, Held at Yale University, May 1977.

  • Phelps, Edmund S., “Phillips Curves, Expectations of Inflation and Optimal Unemployment over Time”,Economica, N.S., Vol. 34, London, 1967, pp. 254–281.

    Article  Google Scholar 

  • —, “Money-Wage Dynamics and Labor-Market Equilibrium”,The Journal of Political Economy, Vol. 76, Chicago, Ill., 1968, pp. 678–711.

    Article  Google Scholar 

  • -,et al. (Eds.),Micro Economic Foundations of Employment and Inflation Theory, New York, 1970.

  • -,Inflation Policy and Unemployment Theory, The Cost-Benefit Approach to Monetary Planning, New York, 1972.

  • —, “Disinflation without Recession: Adaptive Guideposts and Monetary Policy”,Weltwirtschaftliches Archiv, Vol. 114, 1978, pp. 783–809.

    Article  Google Scholar 

  • —, andJohn B. Taylor, “Stabilizing Powers of Monetary Policy under Rational Expectations”,The Journal of Political Economy, Vol. 85, Chicago, Ill., 1977, pp. 163–190.

    Article  Google Scholar 

  • Phillips, A. W., “The Relation between Unemployment and the Rate of Change of Money Wage Rates in the United Kingdom, 1861–1957”,Economica, N.S., Vol. 25, London, 1958, pp. 283–299.

    Google Scholar 

  • Sargent, Thomas J., andNeil Wallace, “Rational Expectations and the Theory of Economic Policy”,Journal of Monetary Economics, Vol. 2, Amsterdam, 1976, pp. 169–183.

    Article  Google Scholar 

  • Solow, Robert M.,Price Expectations and the Behavior of the Price Level, Lectures, Manchester, 1969.

  • Taylor, John B.,Aggregate Dynamics and Staggered Contracts, Columbia University, New York, N.Y., 1978, unpubl.

    Google Scholar 

  • Tobin, James, “Inflation and Unemployment”,The American Economic Review, Vol. 62, Menasha, Wisc., 1972, pp. 1–18.

    Google Scholar 

  • Turnovsky, Stephen J., andMichael L. WÄchter, “A Test of the ‘Expectations Hypothesis’ Using Directly Observed Wage and Price Expectations”,The Review of Economics and Statistics, Vol. 54, Cambridge, Mass., 1972, pp. 47–54.

    Article  Google Scholar 

  • Wachter Michael L., “The Changing Cyclical Responsiveness of Wage Inflation”,Brookings Papers on Economic Activity, Washington, D.C., 1976, pp. 115–159.

Download references

Authors
  1. Franco Modigliani
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Lucas Papademos
    View author publications

    You can also search for this author in PubMed Google Scholar

About this article

Cite this article

Modigliani, F., Papademos, L. Optimal demand policies against stagflation. Weltwirtschaftliches Archiv 114, 736–782 (1978). https://doi.org/10.1007/BF02696379

Download citation

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/BF02696379

Keywords

Search

Navigation