Nominal Income and the Inflation-Growth Divide, Issues 97-147
This paper deals with aggregate demand fluctuations and their price and output effects. Starting with a nominal income solution, a rule for determining the inflation and output growth effects is presented. Assigning alternative values to the key parameters of the suggested rule generates different closure rules, such as the classical and the Keynesian and their modern counterparts. An application to major industrial country data indicates that the suggested rule is robust. Both inflation and output growth are affected by nominal shocks, but response patterns vary among the countries.
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95 Sources acceleration in inflation aggregate demand Appendix table basic classical cross-equation restrictions Cyclical Output Growth derived deviation dynamic adjustment dynamic sequence econometric EIG term error term excess wage term expected value Forecasting Inflation Acceleration growth in unit growth of output hierarchical approach IMF WEO databank impact implied increase Inflation Acceleration dp inflation and growth inflation and output inflation rate Lucas Major Industrial Countries micro foundations misperceptions monetarist monetary money supply new-classical new-Keynesians nominal income gap nominal income growth nominal income solution Output Growth dq output growth rate period’s rate Phillips curve policies postulated potential level potential output growth potential rate preceding period's rate preceding period’s price and output quantity theory rate of growth rate of inflation rational expectations response patterns Section shocks short-run stability staff estimates stagflation table and staff theory of money Tracking and Forecasting underlying unit labor costs wage growth