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Output Gains from Economic Stabilization

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Author Info
Gylfason, T.

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Abstract

By driving a wedge between the marginal returns to real and financial capital, inflation distorts production. The elimination of this distorsion increases both the level and the rate of growth of output. First, increased price stability improves the utilization of capital and thus increases the full-employment level of output in the long run, even though output decreases initially. Second, the static output gain from stabilization is captured in a simple formula in which the gain is approximately proportional to the square of the original inflation distorsion.

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Publisher Info
Paper provided by Stockholm - International Economic Studies in its series Papers with number 606.

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Length: 22 pages
Date of creation: 1996
Date of revision:
Handle: RePEc:fth:stocin:606

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Related research
Keywords: PRICES; PRODUCTION; INFLATION;

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Find related papers by JEL classification:
E23 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Production
E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
P20 - Economic Systems - - Socialist Systems and Transition Economies - - - General

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Romer, Paul M, 1986. "Increasing Returns and Long-run Growth," Journal of Political Economy, University of Chicago Press, vol. 94(5), pages 1002-37, October. [Downloadable!] (restricted)
  2. Bruno, Michael & Easterly, William, 1995. "Inflation crises and long-run growth," Policy Research Working Paper Series 1517, The World Bank. [Downloadable!]
    Other versions:
  3. Easterly, William & DEC, 1993. "How much do distortions affect growth?," Policy Research Working Paper Series 1215, The World Bank. [Downloadable!]
    Other versions:
  4. Dixit, Avinash, 1985. "Tax policy in open economies," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 1, chapter 6, pages 313-374 Elsevier. [Downloadable!] (restricted)
  5. Stanley Fischer, 1991. "Growth, Macroeconomics, and Development," NBER Working Papers 3702, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  6. Fischer, Stanley, 1974. "Money and the Production Function," Economic Inquiry, Oxford University Press, vol. 12(4), pages 517-33, December.
  7. King, Robert G & Levine, Ross, 1993. "Finance and Growth: Schumpeter Might Be Right," The Quarterly Journal of Economics, MIT Press, vol. 108(3), pages 717-37, August. [Downloadable!] (restricted)
    Other versions:
  8. Gylfason, T, 1995. "The Macroeconomics of European Agriculture," Princeton Studies in International Economics 78, International Economics Section, Departement of Economics Princeton University,.
  9. Edwards, Sebastian, 1992. "Trade orientation, distortions and growth in developing countries," Journal of Development Economics, Elsevier, vol. 39(1), pages 31-57, July. [Downloadable!] (restricted)
    Other versions:
  10. Fischer, S., 1991. "Growth, Macroeconomics, and Development," Working papers 580, Massachusetts Institute of Technology (MIT), Department of Economics.
  11. Gylfason, T., 1992. "Output Gains from Economic Liberalization: A Simple Formula," Papers 514, Stockholm - International Economic Studies.
  12. Gylfason, Thorvaldur, 1990. "Inflation, Growth and External Debt: A View of the Landscape," CEPR Discussion Papers 375, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Thorvaldur Gylfason, 2001. "Resources, Agriculture, and Economic Growth in Economies in Transition," Development and Comp Systems 0012006, EconWPA. [Downloadable!]
    Other versions:
  2. Frederick H. Wallace & Gary L. Shelley, 2004. "Long Run Neutrality and Superneutrality of Money: Aggregate and Sectoral Tests for Nicaragua," Macroeconomics 0402004, EconWPA. [Downloadable!]
  3. Jesper Rangvid, 2007. "The Effects of Temporary Exchange-Rate-Based Stabilizations when Money Serves a Productive Role," Open Economies Review, Springer, vol. 18(4), pages 453-477, September. [Downloadable!] (restricted)
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