The Yugoslav inflation: Some competing hypotheses

Various hypotheses about wage and price inflation in Yugoslavia are presented and tested empirically with quarterly data from the 1962–1972 period. Both theoretical literature and empirical evidence on the behavior of the self-managed firm are used to derive different models of wage determination. The wage-equation results indicate that labor-market conditions, inflationary expectations; and labor-productivity variables are significant determinants of the rate of growth of wages. The price equations, based on a modified cost-markup model consistent with the practices of Yugoslav firms, identify labor costs and aggregate demand as significant determinants of the rate of growth of prices. University of California, Berkeley.     

A Union-bashing Model of Inflation Targeting

This paper shows that in an open two‐sector economy, centralization of wage setting may be important in determining the employment (and welfare) effects of different monetary targets. By disciplining unions in the sectors open to international trade, exchange rate targeting yields higher employment than inflation targeting when wage‐setting is more centralized in the open sector than in the shielded sector. When wage‐setting centralization is higher in the shielded sector, we show that general price‐level inflation targeting, while better than exchange rate targeting, is inferior to an inflation target that focuses more heavily on shielded sector prices.     

Food supply and inflation

The paper presents an analytic version of the Latin American structuralist theory of inflation. It emphasizes the difference between the productive sectors of the economy and draws attention to the fact that the inflationary process is closely linked to inconsistent claims for shares in income. It describes a Keynesian economy with two (three) sectors. Real desired wages are rigid. Money is passive. It is shown that the structuralist hypotheses are capable of generating disequilibria that can lead to constantly rising prices without any built in mechanism to offset them. Steady inflation can only persist if workers allow their real wage to be kept below target. As the workers try to catch on, the model will blow up: an accelerating inflation can be observed in many Latin American countries during periods when wage settlements, aimed at restoring inflation losses, escaped the government control. The paper also explores the implications of foreign trade: it shows that, under structuralist hypotheses, external disequilibria cannot be corrected through exchange rate devaluations alone, and it examines the stagflationary impacts of an increase in the price of imported intermediates.     

OIL PRICE VOLATILITY AND U.S. MACROECONOMIC PERFORMANCE

This study uses a model with explicit energy sector linkages to estimate the macroeconomic impacts of the 1986 collapse in energy prices. The model combines features of neoclassical macroeconomics to estimate final demand spending and of general equilibrium analysis to estimate substitution possibilities. The model allows price and wage rigidities yet permits interfuel and input substitutions. The simulation results suggest three conclusions. First, the most significant macroeconomic impact of the 1986 oil price reduction is the sharp drop in inflation. Second, output and employment gains are relatively small due to the sharp drop in energy sector output. Finally, the estimated gain in real output due to lower energy prices is close to the output loss resulting from the trade deficit increase during 1986. This may be one reason why no substantial increase in economic growth occurred following the 1986 collapse in energy prices.     

The ERM Effect,Conflict and Inflation in the European Union

This paper investigates price inflation expectations and wage determination in the ERM member countries with the aim of assessing the importance of the ERM effect and distributional conflict. We have found strong evidence of an ERM effect in the inflationary process of participating countries, but this effect manifests itself primarily through structural changes in labour markets rather than through importing Bundesbank's reputation. This evidence questions the tendency to model the ERM as a credibility-reputation game. Inflation expectations for all ERM countries are strongly influenced by movements in unit labour costs and demand, and secondarily by world commodity and oil prices. The empirical results provide strong support for the conflict approach to wage inflation.     

THE REDISTRIBUTIONAL EFFECTS OF THE INFLATIONARY PROCESS IN JAPAN, 1955–75*

It is often discussed that inflation introduces a substantial, arbitrary and regressive redistribution of income and wealth under even mild inflation. But after a quarter century of experience with inflation in postwar Japan, very little is known about these costs of inflation on an empirical basis. Due to the complexity of the evaluation of the redistributional impact on Japan, the present paper analyzes the effects of inflation on individuals or groups as wage earners, debtors and creditors, taxpayers, and holders of real estate. The main results of the present investigation suggest that the Japanese inflation for 1955–75 did not seem to introduce much inequality in the income (flow) account in the economy, but that the inequality between households has appeared more in the wealth (stock) account, especially between the house-owner groups and non-house-owner groups. These observations are mainly derived from the following investigations; (i) the wage lag hypothesis about inflation, even if not wrong, does not seem acceptable when applied to the entire period (1955–75) as well as to each of the five sub-periods; (ii) there has been a substantial transfer of real purchasing power from households to non-financial corporations, and, to a lesser extent, to government entities in the debtor-creditor redistribution; (iii) among households, the most substantial redistribution takes place from the non-houseowners to houseowners with land, because of the huge amount of capital gains from the rapid increase in the price of real estate relative to the prices of other assets or the consumer price index, except for the last three years of rampaging inflation.     

Life beyond the Washington Consensus: An Introduction to Pro-poor Macroeconomic Policies

Abstract

This paper develops a rationale for the recession-induced inflation hypothesis. Within a conflicting claims framework we present a model in which both price leaders and organized workers set their nominal prices on the basis of a desired profit rate and a real wage target respectively. We argue that an absolute cost advantage in concentrated industries (for instance in fixed costs) may provide oligopolistic leaders sufficient margin to raise prices and restore a desired level of profitability during a recession. The resultizng unstable income distribution will set off an inflationary spiral if the firm's advantage in selling its output imparts an upward bias to the flexibility of input prices (specifically wages). Taking into consideration different scenarios for workers' bargaining power we present a simple simulation experiment to analyze the inflation and real wage paths of the economy after a negative output shock. When we endogenize output, we show that for a high degree of the bargaining power, output is likely to converge to a higher steady-state value.     

The Economic Situation

Throughout the first nine months of 1976 the Australian economy has remained virtually stagnant, with output and employment increasing only marginally and unemployment rising also. With the government following a severely contractionary policy in an attempt to break inflation the economy seems poised for a further modest downturn in the next nine months so that a self-sustaining recovery from the current recession does not seem to be in prospect before the second half of 1977. On the basis of existing policies our forecasts indicate a rate of growth of real GDP of only about 1.0 per cent in 1976–77, implying a further significant rise in unemployment during the financial year. There have been some hopeful signs in recent months of a reduction in inflation — the consumer price index increases in the first three quarters of 1976 were modest and wage rate increases remain closely in line with the wage indexation guidelines — but three factors have emerged to cast doubt on whether this improving trend will continue. The first is the effect of the recent drought on prices of foodstuffs, particularly meat, and the second is the expected 1.5 to 2.0 per cent increase in the consumer price index as a result of the changes in the method of financing hospital and medical services. These two factors mean that the December quarter increase in the consumer price index may be more than 5 per cent, threatening a further stimulus to inflation in 1977. Thirdly, present government policies could easily lead to a breakdown of the wage indexation system and a return to some form of collective bargaining over wage rates. Assuming nevertheless, a de facto continuation of partial indexation in 1977, we expect increases in male award wages and male average earnings of about 13 per cent during 1977, these increases being similar to those during 1975 and 1976 but much below the increases of 36 per cent and 28 per cent respectively recorded during 1974. Our forecasts also indicate increases in the consumer price index of 14 per cent during 1976 and 11 per cent during 1977, following increases of 16.3 per cent and 14.0 per cent during 1974 and 1975 respectively. These forecasts indicate that the government's fiscal, monetary, exchange rate and wage policies are likely to come under heavy challenge early in 1977, and decisions taken at that time are likely to be major determinants of economic developments in Australia in the next few years. The Institute would again urge a shift to a co-operative package including full wage indexation, with cuts in indirect taxes and public sector charges to wind down inflation and expand the economy. On current indications, labour productivity will be no higher in 1976–77 than in 1973–74, because of the weakness of total output, so that the whole burden of wage increases in that three year period has fallen on unit costs of production. It is our belief that the twin problems of inflation and unemployment will only be defeated in Australia when both cuts in indirect or direct taxes and increases in productivity are applied to reducing inflation in the context of an orderly system of wage and price determination.     

Business Civilization in Decline

Technological change is modeled as endogenous in the sense that it is affected by economic, behavioral, and institutional variables. Technological change is especially affected by changes in relative input prices and their level, of which the price of labor is particularly important. Input prices are affected by institutional variables. Such prices also impact on the firm's efficiency, which in turn affects growth rates as well as the rate of technical change. As relative factor prices or their level increase, firms are induced to innovate or adopt extant technology to remain competitive or to maintain current profit rates. High wage firms can be expected to engage in such induced technological change, leading the growth process thereby yielding lower unit costs and increasing the level of material welfare. Relatively low wage economies can be locked into a state of economic inefficiency and laggard technological progress, especially in the long run.     

The Swedish third way: an assessment of the performance and validity of the Rehn-Meidner model

This paper analyses the functioning of the Rehn–Meidnermodel in Sweden and the validity of the model's underlying theory.Both sceptics and friends of ‘the Swedish model’have exaggerated the effects of active labour market policyand solidarity wage policy on employment, inflation and growth.However, these policies have contributed to the reduction ofhysteresis effects and wage differentials in Sweden. Furthermore,Swedish experiences confirm the Rehn–Meidner view thatpositive demand shocks and expansionary macroeconomic policiesmake it difficult to combine full employment with price stability,economic growth and equity even if central wage negotiationsare coordinated and trade unions willingly accept wage restraint.     

The demand for broad money in Norway, 1969–1993

Cointegration analysis is applied to investigate the long run relationships between money, prices, and wages in Norway. Broad money is determined endogenously, and monetary balances were exposed to large shocks during the period of financial deregulation in the midst of the 1980s. In the long run these shocks are absorbed, and a long run demand for money relationship is identified in which real money is determined by real income, the relative price on financial assets (the yield spread) and the relative price on goods (the own real interest rate). Money adjusts dynamically to changes in the exchange rate and private wealth. Domestic price inflation is affected by improted inflation including currency depreciation (a pass through effect), domestic cost pressure (unit labour costs), and excess demand in the product market (output gap effect).This paper was presented at the workshop Money Demand in Europe, at the Humboldt University in Berlin, October 10–11, 1997. Thanks to Erik, Biørn, Neil R. Ericsson and Grayham Mizon for their comments on previous versions of the paper and to two anonymous referees and the editors for helpful suggestions.     

3F冲击对中国通货膨胀的影响研究

本文选取全球通货膨胀率、国际能源价格、国际食品价格作为3F外部冲击的三个影响因素,应用扩展的菲利普斯曲线实证分析1981年至2011年的外部冲击因素与我国通胀率的长期关系,然后使用VAR模型对这些外部因素所产生的冲击效果做进一步探究。实证结果表明：短期内,全球通货膨胀率是导致国内价格水平上升的主要原因;随着时间的推移,国际能源价格与国际食品价格对于国内价格水平的影响力逐渐增强,且在中长期成为较为重要的影响因素。而通胀预期与产出缺口则是中长期影响物价的最主要因素。因此,为了抵御外部冲击对我国通货膨胀的影响,管理我国对于本国及全球通胀的预期、构建相应的价格缓冲机制、实施农产品进口渠道多元化战略等均是较为有效的手段。与此同时,也要防止经济过快增长,抑制由于投资需求带来的通货膨胀。     

The effects of indexation of wage contracts on macro-economic stability

The paper develops a simple analytical framework in which the shortrun affects of wage indexation on the dynamic stability of inflation can be analyzed. It consists of a unlonized labor market faced by a competitive demand. Without indexation, the wage contract is based upon the union's prediction of the price level during the period of the contract. With indexation, the same objective is achieved by contracting only once at some initial period, subject to the stipulation that the nominal wage is linked to the price level. The main result is that when the demand for money is sensitive to changes in the expected rate of inflation, nominal variables like prices and wages are more likely to yield an unstable dynamic response with wage indexation, thus endangering the monetary system.     

A DYNAMIC MODEL OF HOUSING DEMAND: ESTIMATION AND POLICY IMPLICATIONS*

Using data from the PSID, we estimate a dynamic model of housing demand with nonconvex adjustment costs, credit constraints, and uncertainty about income and home prices. We simulate how consumer behavior responds to house price and income declines as well as tightening credit. In response to a negative home price shock, households early in the life cycle climb the housing ladder more quickly and invest more in housing assets due to the lower price. With a concurrent negative income shock, however, housing demand falls among young and middle aged households who stay in smaller homes rather than to trade up.     

The International Economy — A Survey

In most of the major world economies the hesitancy evident toward the end of last year has dissipated and the cyclical upswing in economic activity was well advanced by the middle of 1976, with the recovery showing particular strength in the first half of 1976 inthe United States and in West Germany. Even so industrial production had not yet returned, by the end of June 1976, to the previous cyclical peak in any of the major economies. With the OECD countries in aggregate sure to achieve a real growth rate of 4 per cent in 1976, and quite possibly an appreciably higher rate, the attention of many national and international policy makers is turning to ways of moderating the recovery so that inflationary pressures can be minimised. For in spite of the depth of the 1974/75 world recession the outlook for inflation remains threatening, much more so than at the corresponding stage of the previous cycle in 1972. In the twelve months to May 1976 consumer prices rose by 9.0 per cent in all OECD countries and this figure is disturbingly high for the trough of a serious recession. World commodity prices have risen about 35 per cent in dollar terms in the past year; as in the 1973–74 boom the major economies are now moving into an upswing simultaneously, thus compounding possible demand effects on inflation; business investment has fallen sharply in all countries during the recession, and only in the United States is a strong recovery in investment currently in evidence. The rate of growth of wages has however moderated in most countries, reflecting weak labour market conditions, lower consumer price increases and in countries such as United Kingdom and Canada the successful implementation of incomes policies. With output increasing, the rate of growth of unit wage costs has in most cases dropped sharply.     

Differences in long run exchange rate pass-through into import prices in developing countries: An empirical investigation

This paper investigates the exchange rate pass-through into import prices in a sample of 24 developing countries over the period from 1980 to 2003. We estimate a pass-through equation determined by a combination of the nominal exchange rate, the price of the competing products, the exporter's costs and demand conditions. We adopt non-stationary panel estimation techniques and tests for cointegration. In the long run, homogeneity of pass-through rates across countries can be rejected. Moreover, we show that most of these differences in exchange rate pass-through into import prices are due to three macroeconomics determinants: exchange rate regimes, trade barriers and inflation regimes.     

Inflation pressure and price intervention: an ominous combination∗

Of the debate regarding the new round of surging inflation in China, structural opinion interprets inflation as a problem of structural price growth, mainly brought about by a price hike for selected commodities as a result of exogenous shocks from different sectors. In line with the explanation, various measures aiming to control prices have been implemented recently. On the basis of basic economic principles and empirical evidence drawn from four cases, this essay argues that price intervention policies are counter-productive in bringing inflation down.     

Does wage-inflation targeting complement foreign exchange intervention? An evaluation of a multi-target,two-instrument monetary policy framework

We assess the inclusion of wage inflation as an intermediate target of an emerging central bank using a dynamic stochastic general equilibrium model with sticky wages and prices calibrated for the South Korean economy. The model includes wage inflation as an additional target jointly with domestic price inflation and the output gap in a Taylor- type interest rate rule operating with a sterilized foreign exchange (FX) intervention rule. Our results show a complementary relationship between wage inflation targeting and price inflation targeting. That is, by supplementing price inflation targeting with wage inflation targeting, welfare improves for cases with and without sterilized FX intervention. When intervention is in place, wage inflation targeting has the added advantage of reducing the volatilities of nominal exchange rate and foreign exchange reserves thereby promoting a more sustainable conduct of FX intervention.     

Real wages,profit margins and inflation in Turkish manufacturing under post-liberalization

This article reports investigations into the behaviour of gross profit margins (mark-ups) in Turkish manufacturing industries for the post-1980 liberalization period in relation to price inflation, trade liberalization (openness) and real wage costs. Panel data econometrics over 29 subsectors of Turkish manufacturing are used over the period 1980–1996. Results suggest that profit margins are positively and significantly related both to price inflation and real wage costs. However, openness is found to have very little impact on profit margins.     

The import price index with trade barriers: theory and evidence

The standard economic import price index hinges on an assumption of free trade. Applying the index to situations with barriers to trade yields biased results compared to a true import price index. To circumvent this problem, it is common to use average prices, such as unit values, as an aggregator function. However, the use of average prices is not rooted in economic theory. In this paper, I generalise the economic import price index to allow for barriers to trade in the form of quantity constraints. To illustrate the theoretical framework, I use the case of imports of textiles to Norway from 1988 to 1997. I find that a standard economic import price index, such as the Laspeyres index, grossly overstates import costs and that this bias is significantly reduced by using unit values.