IDEAS home Printed from https://ideas.repec.org/a/mcb/jmoncb/v13y1981i4p425-38.html
   My bibliography  Save this article

Monetary Accommodation of Supply Shocks under Rational Expectations

Author

Listed:
  • Blinder, Alan S

Abstract

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.)

Suggested Citation

  • Blinder, Alan S, 1981. "Monetary Accommodation of Supply Shocks under Rational Expectations," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 13(4), pages 425-438, November.
  • Handle: RePEc:mcb:jmoncb:v:13:y:1981:i:4:p:425-38
    as

    Download full text from publisher

    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 below or search for a different version of it.

    Other versions of this item:

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Aizenman, Joshua & Frenkel, Jacob A, 1986. "Supply Shocks, Wage Indexation and Monetary Accommodation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 18(3), pages 304-322, August.
    2. Froyen, Richard T & Waud, Roger N, 1988. "Real Business Cycles and the Lucas Paradigm," Economic Inquiry, Western Economic Association International, vol. 26(2), pages 183-201, April.
    3. Matthew B. Canzoneri & Jo Anna Gray, 1983. "Two essays on monetary policy in an interdependent world," International Finance Discussion Papers 219, Board of Governors of the Federal Reserve System (U.S.).
    4. Turnovsky, Stephen J, 1987. "Supply Shocks and Optimal Monetary Policy," Oxford Economic Papers, Oxford University Press, vol. 39(1), pages 20-37, March.
    5. Alan S. Blinder & Jeremy B. Rudd, 2013. "The Supply-Shock Explanation of the Great Stagflation Revisited," NBER Chapters, in: The Great Inflation: The Rebirth of Modern Central Banking, pages 119-175, National Bureau of Economic Research, Inc.
    6. Robert J. Gordon, 2011. "The History of the Phillips Curve: Consensus and Bifurcation," Economica, London School of Economics and Political Science, vol. 78(309), pages 10-50, January.
    7. Robert Rennhack, 1991. "La Conducción de la Política Monetaria," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 28(83), pages 11-20.
    8. Froyen, Richard T & Waud, Roger N, 1987. "An Examination of Aggregate Price Uncertainty in Four Countries and Some Implications for Real Output," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 28(2), pages 353-372, June.
    9. Raphael Auer & Mathieu Pedemonte & Raphael Schoenle, 2024. "Sixty years of global inflation: a post-GFC update," BIS Working Papers 1189, Bank for International Settlements.
    10. Alan S. Blinder & Ricardo Reis, 2005. "Understanding the Greenspan standard," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, issue Aug, pages 11-96.
    11. Charles Freedman, 1982. "The effect of U.S. policies on foreign countries: the case of Canada," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 97-129.
    12. Alan S. Blinder & Ricardo Reis, 2005. "Understanding the Greenspan standard," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, issue Aug, pages 11-96.
    13. John B. Taylor, 1982. "The role of expectations in the choice of monetary policy," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 47-95.
    14. repec:pri:cepsud:176blinder is not listed on IDEAS
    15. Alan S. Blinder & Jeremy B. Rudd, 2013. "The Supply-Shock Explanation of the Great Stagflation Revisited," NBER Chapters, in: The Great Inflation: The Rebirth of Modern Central Banking, pages 119-175, National Bureau of Economic Research, Inc.
    16. repec:pri:cepsud:114blinderreis is not listed on IDEAS
    17. Muhammad Zeshan & Wasim Shahid Malik & Muhammad Nasir, 2019. "Oil Price Shocks, Systematic Monetary Policy and Economic Activity," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 58(1), pages 65-81.
    18. Gerard Caprio, 1982. "The Swedish economy in the 1970's: the lessons of accommodative policies," International Finance Discussion Papers 205, Board of Governors of the Federal Reserve System (U.S.).

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. 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.

    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.

    We have no bibliographic references for this item. You can help adding them by using 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    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 (email available below). General contact details of provider: http://www.blackwellpublishing.com/journal.asp?ref=0022-2879 .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.