IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this article or follow this journal

Monetary Accommodation of Supply Shocks under Rational Expectations

  • Blinder, Alan S

In dealing with the expectationists' arguments, I will divide them (somewhat artificially) into two groups. Arguments in the first group, which I call "present disaster" arguments, allege that econometric models err by understating the reaction of inflationary expectations. For example, it is claimed that a policy of monetary accommodation would increase inflationary expectations, shift the short-run Phillips curve upward, and defeat the purpose of the expansionary policy. Arguments in the second group, which I call "future disaster" arguments, are more subtle, but also more elusive. The idea is that by informing private agents that it will accommodate supply shocks in the future, the monetary authority would exacerbate the downward rigidity of wages and prices, thus making it more difficult to deal with future supply shocks. Such arguments are cases of the Lucas [12] econometric policy critique, since they suggest that policy changes will cause parameter shifts. Neither of these arguments is implausible on its face. The problem is that it is hard to know how to evaluate them until they are formalized in theoretical models and then tested empirically. This paper takes one small step in that direction by augmenting two popular macro models with rational expectations so that they are capable of dealing with supply shocks, and then examining both the present and future disaster arguments in the context of each.

(This abstract was borrowed from another version of this item.)

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://links.jstor.org/sici?sici=0022-2879%28198111%2913%3A4%3C425%3AMAOSSU%3E2.0.CO%3B2-1&origin=bc
File Function: full text
Download Restriction: Access to full text is restricted to JSTOR subscribers. See http://www.jstor.org for details.

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Article provided by Blackwell Publishing in its journal Journal of Money, Credit and Banking.

Volume (Year): 13 (1981)
Issue (Month): 4 (November)
Pages: 425-38

as
in new window

Handle: RePEc:mcb:jmoncb:v:13:y:1981:i:4:p:425-38
Contact details of provider: Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-2879

No references listed on IDEAS
You can help add them by filling out this form.

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:mcb:jmoncb:v:13:y:1981:i:4:p:425-38. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing)

or (Christopher F. Baum)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.