ARE THERE ADVERSE INFLATION EFFECTS ASSOCIATED WITH NATURAL GAS DECONTROL?

The Natural Gas Policy Act (NGPA) will decontrol gas prices in 1985, and there is concern about its inflation and output effects. In this investigation of these concerns, two misapprehensions are remedied. First, inflation is primarily a monetary phenomenon so that a rise in energy prices affects the price level, but any impact on inflation is temporary. Second, while analyses of NGPA have assumed that the price of gas will achieve parity with petroleum, they have neglected decontrol's effect on OPEC's optimal price, Our estimates of the decontrol effect demonstrate that energy prices will fall, not rise