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A Consistent Characterization of a Near-Century of Price Behavior

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Robert J. Gordon

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Abstract

This paper demonstrates that the commonly used Expectational Phillips Curve (EPC) framework cannot explain the last eighty-seven years of aggregate price behavior in the United States. The EPC explanation, which in its most general form relates price change to expected inflation and the level of detrended output, obscures the fact that price change has been much more closely related to the contemporaneous rate of change of detrended output. Over the near-century of annual data studied here, a change in output has shown a remarkably consistent tendency to be associated in annual data with a simultaneous change in the price level of about one-half as much. Stated another way, nominal GNP changes have been divided consistently, with two-thirds taking the form of output change and the remaining one-third the form of price change. This finding applies not only over the entire 1890-1978sample period, but also over three subperiods (1890-1929, 1929-53, and 1953-78).

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 0455.

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Date of creation: Jun 1980
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Handle: RePEc:nbr:nberwo:0455

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  1. Klein, Benjamin, 1976. "The social costs of the recent inflation: The mirage of steady "anticipated" inflation," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 3(1), pages 185-212, January. [Downloadable!] (restricted)
  2. Feige, Edgar L & Pearce, Douglas K, 1976. "Economically Rational Expectations: Are Innovations in the Rate of Inflation Independent of Innovations in Measures of Monetary and Fiscal Policy?," Journal of Political Economy, University of Chicago Press, vol. 84(3), pages 499-522, June. [Downloadable!] (restricted)
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  1. J. Bradford De Long & Lawrence H. Summers, 1986. "The Changing Cyclical Variability of Economic Activity in the United States," NBER Working Papers 1450, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  2. Allen Sinai, 1985. "The Dollar and Inflation," Eastern Economic Journal, Eastern Economic Association, vol. 11(3), pages 211-220, Jul-Sep. [Downloadable!]
  3. Sara lemos, 2004. "The Effect of the Minimum Wage on Prices," Discussion Papers in Economics 04/7, Department of Economics, University of Leicester. [Downloadable!]
    Other versions:
  4. M. Ishaq Nadiri, 1986. "Price Inertia and Inflation: Evidence and Theoretical Rationale," NBER Working Papers 2022, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  5. Sara Lemos, 2006. "A Survey of the Effects of the Minimum Wage on Prices," Discussion Papers in Economics 06/9, Department of Economics, University of Leicester. [Downloadable!]
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  6. Nelson, Edward, 2001. "What Does the UK's Monetary Policy and Inflation Experience Tell Us About the Transmission Mechanism?," CEPR Discussion Papers 3047, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  7. John M. Roberts, 2006. "Monetary Policy and Inflation Dynamics," International Journal of Central Banking, International Journal of Central Banking, vol. 2(3), September. [Downloadable!]
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  8. Adrian W. Throop, 1988. "An evaluation of alternative measures of expected inflation," Economic Review, Federal Reserve Bank of San Francisco, issue Sum, pages 27-43. [Downloadable!]
  9. John A. James, 1985. "Shifts in the Nineteenth-Century Phillips Curve Relationship," NBER Working Papers 1587, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  10. Sara Lemos, 2007. "A Survey of the Effects of the Minimum Wage in Latin America," Discussion Papers in Economics 07/04, Department of Economics, University of Leicester. [Downloadable!]
  11. John Hassler & Petter Lundvik & Torsten Persson & Paul Soderlind, 1992. "The Swedish business cycle: stylized facts over 130 years," Discussion Paper / Institute for Empirical Macroeconomics 63, Federal Reserve Bank of Minneapolis. [Downloadable!]
  12. Laurence Ball, 2000. "Near-rationality and inflation in two monetary regimes," Proceedings, Federal Reserve Bank of San Francisco. [Downloadable!]
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