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Shifts in the Nineteenth-Century Phillips Curve Relationship

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  • John A. James

Abstract

This paper examines shifts in the output effects of unanticipated inflation in the nineteenth-century United States by estimatinga Lucas-type aggregate supply function over the 1840-1900 period. It is shown that, in contrast to the twentieth-century experience in which there has been a pronounced movement toward greater cyclical price rigidity, the nineteenth-century output response to unanticipated price changes was roughly stable over the period. Such stability is also particularly interesting in view of the dramatic changes in communications and transportation technology, particularly the telegraph and the railroad, which greatly facilitated information flows and thereby should have forced the price-surprise coefficient downward. Other factors which may have offset the influence of these improvements in information technology on the price-surprise coefficient include the reduced general price level variability due to the gold standard in the postbellum period and the possibility that the net effects of such improvements may in fact have been small because shocks were able to spread more rapidly aswell. Finally, the perceived increase in cyclical price rigidity over the nineteenth century in the raw data is shown to have resulted not from a change in price-surprise coefficient hut rather from an increased degree of persistence or inertia in the economy.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 1587.

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Date of creation: Mar 1985
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Publication status: Published as "The Stability of the 19th Century Phillips Curve Relationship", EEH, Vol. 26, no. 2 (1989): 117-134.
Handle: RePEc:nbr:nberwo:1587

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  1. Milton Friedman & Anna Jacobson Schwartz, 1970. "Monetary Statistics of the United States: Estimates, Sources, Methods," NBER Books, National Bureau of Economic Research, Inc, number frie70-1.
  2. Gordon, Robert J, 1981. "Output Fluctuations and Gradual Price Adjustment," Journal of Economic Literature, American Economic Association, vol. 19(2), pages 493-530, June.
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  5. Ray C. Fair, 1978. "An Analysis of the Accuracy of Four Macroeconometric Models," Cowles Foundation Discussion Papers 492, Cowles Foundation for Research in Economics, Yale University.
  6. Godfrey, L G, 1976. "Testing for Serial Correlation in Dynamic Simultaneous Equation Models," Econometrica, Econometric Society, vol. 44(5), pages 1077-84, September.
  7. Abramovitz, Moses & David, Paul A, 1973. "Reinterpreting Economic Growth: Parables and Realities," American Economic Review, American Economic Association, vol. 63(2), pages 428-39, May.
  8. Richard T. Froyen & Roger N. Waud, 1983. "The Changing Relationship Between Aggregate Price and Output: The British Experience," NBER Working Papers 1134, National Bureau of Economic Research, Inc.
  9. Michael L. Wachter, 1976. "The Changing Cyclical Responsiveness of Wage Inflation," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 7(1), pages 115-168.
  10. Hercowitz, Zvi, 1981. "Money and the Dispersion of Relative Prices," Journal of Political Economy, University of Chicago Press, vol. 89(2), pages 328-56, April.
  11. David, Paul A., 1977. "Invention and accumulation in america's economic growth: A nineteenth-century parable," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 6(1), pages 179-228, January.
  12. Lucas, Robert E, Jr, 1975. "An Equilibrium Model of the Business Cycle," Journal of Political Economy, University of Chicago Press, vol. 83(6), pages 1113-44, December.
  13. Cukierman, Alex, 1979. "Rational expectations and the role of monetary policy : A generalization," Journal of Monetary Economics, Elsevier, vol. 5(2), pages 213-229, April.
  14. James, John A., 1984. "Public debt management policy and nineteenth-century American economic growth," Explorations in Economic History, Elsevier, vol. 21(2), pages 192-217, April.
  15. 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.
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  17. Stevens, Edward J, 1971. "Composition of the Money Stock Prior to the Civil War," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 3(1), pages 84-101, February.
  18. Robert J. Gordon, 1980. "A Consistent Characterization of a Near-Century of Price Behavior," NBER Working Papers 0455, National Bureau of Economic Research, Inc.
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Cited by:
  1. Charles W. Calomiris, 1992. "Greenback Resumption and Silver Risk: The Economics and Politics of Monetary Regime Change in the United States, 1862-1900," NBER Working Papers 4166, National Bureau of Economic Research, Inc.
  2. Charles W. Calomiris & R. Glenn Hubbard, 1985. "Price Flexibility, Credit Rationing, and Economic Fluctuations: Evidence from the U.S., 1879-1914," NBER Working Papers 1767, National Bureau of Economic Research, Inc.

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