Strain and Inflation-Unemployment Relationship: A conceptual and empirical investigation
AbstractEconomic theory tells that a command system allocates resources poorly because of the impossibility of economic calculation. Therefore, once prices are freed and start to operate at quasi-equilibrium (market-clearing) levels, the hidden inefficiencies come into the open and a massive resource reallocation would have to take place. More precisely, the issue refers to the possible and probable intensity of resource reallocation in view of constraints like the balance between exit and entry in the labour market, the size of the budget deficit and the means for its non-inflationary financing, social and political stability, etc. This paper makes an attempt to conceptualise the emergence of strain emerges an economic system when relative prices change dramatically, and explores what can be implications for stabilisation policy. The start is made with the closed economy, after which the open economy case is looked at, and a possible formalised expression of strain is suggested, The distributional struggle, as a consequence of resource reallocation, is highlighted. Some modelling and empirical analysis help in substantiating the main thesis. it is contented that the line of reasoning espoused herein can help in developing an economic explanation of shocks in economic systems.
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Bibliographic InfoPaper provided by Institute for Economic Forecasting in its series Working Papers of Institute for Economic Forecasting with number 081201.
Length: 44 pages
Date of creation: Dec 2008
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open economy; Phillips curve; long-run atractor; fractal dimension;
Find related papers by JEL classification:
- C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
- C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
- E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution
- E27 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Forecasting and Simulation: Models and Applications
- P24 - Economic Systems - - Socialist Systems and Transition Economies - - - National Income, Product, and Expenditure; Money; Inflation
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