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The determinants of stagflation in a panel of countries

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  • Berthold, Norbert
  • Gründler, Klaus
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    Abstract

    This paper explores the determinants of stagflation. Three measures are proposed that gauge both the occurrence and the strength of stagflation. We investigate the empirical determinants of these measures, accounting for a range of theoretical hypotheses that have been discussed since the mid-1970s. The results confirm the ambiguity in the influence of oil, although we find clear evidence that adverse supply-shocks enhance the probability and the magnitude of stagflation. However, while stagflation was oil-induced during the 1970s and 1980s, its occurrence in recent decades is strongly affected by monetary policy and labor productivity, indicating a paradigm shift in policy implications. The inevitable policy dilemma, suggested by the empirical persistence of stagflation, may thus be vincible. Yet, while stagflation was more severe during the 1970s and the 1980s, the likelihood of its recurrence turns out to be higher than often thought. --

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    Bibliographic Info

    Paper provided by Julius-Maximilians-Universität Würzburg, Lehrstuhl für Volkswirtschaftslehre, insbes. Wirtschaftsordnung und Sozialpolitik in its series Wirtschaftswissenschaftliche Beiträge with number 117 [rev.].

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    Date of creation: 2013
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    Handle: RePEc:zbw:wuewwb:117r

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    Keywords: Stagflation;

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    1. Robert B. Barsky & Lutz Kilian, 2001. "Do We Really Know that Oil Caused the Great Stagflation? A Monetary Alternative," NBER Working Papers 8389, National Bureau of Economic Research, Inc.
    2. Joseph Hilbe, 1994. "Negative binomial regression," Stata Technical Bulletin, StataCorp LP, vol. 3(18).
    3. Martin Bodenstein & Christopher J. Erceg & Luca Guerrieri, 2007. "Oil shocks and external adjustment," International Finance Discussion Papers 897, Board of Governors of the Federal Reserve System (U.S.).
    4. Cameron, A.C. & Windmeijer, F.A.G., 1993. "R-Squared Measures for Count Data Regression Models with Applications to Health Care Utilization," Papers 93-24, California Davis - Institute of Governmental Affairs.
    5. James D. Hamilton, 2000. "What is an Oil Shock?," NBER Working Papers 7755, National Bureau of Economic Research, Inc.
    6. William H. Branson & Julio J. Rotemberg, 1991. "International Adjustment with Wage Rigidity," NBER Chapters, in: International Volatility and Economic Growth: The First Ten Years of The International Seminar on Macroeconomics, pages 13-44 National Bureau of Economic Research, Inc.
    7. Cubitt, Robin P, 1997. " Stagflationary Bias and the Interaction of Monetary Policy and Wages in a Unionized Economy," Public Choice, Springer, vol. 93(1-2), pages 165-78, October.
    8. James D. Hamilton, 2009. "Causes and Consequences of the Oil Shock of 2007-08," NBER Working Papers 15002, National Bureau of Economic Research, Inc.
    9. Nelson, Edward & Nikolov, Kalin, 2004. "Monetary Policy and Stagflation in the UK," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(3), pages 293-318, June.
    10. Hicks, Bruce & Kilian, Lutz, 2009. "Did Unexpectedly Strong Economic Growth Cause the Oil Price Shock of 2003-2008?," CEPR Discussion Papers 7265, C.E.P.R. Discussion Papers.
    11. Jeffrey M Wooldridge, 2010. "Econometric Analysis of Cross Section and Panel Data," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262232588, December.
    12. Kilian, Lutz, 2005. "Exogenous Oil Supply Shocks: How Big Are They and How Much do they Matter for the US Economy?," CEPR Discussion Papers 5131, C.E.P.R. Discussion Papers.
    13. Cameron, A Colin & Trivedi, Pravin K, 1986. "Econometric Models Based on Count Data: Comparisons and Applications of Some Estimators and Tests," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 1(1), pages 29-53, January.
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