Supply of Output and Inflation in EC Countries
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The theory of Chapter 2 explains domestically-produced output, domestic prices and the overall price level in terms of foreign prices, money, the exchange rate and other impulses. The central feature of the theory is the Lucas supply of output extended to an open economy which incorporates, in addition to inflation-rate misperceptions, terms-of-trade effects, the ‘tax wedge’ and wage indexation.
KeywordsBusiness Cycle Rational Expectation Quarterly Data Supply Shock Money Stock
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