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Obligational Markets and the Mechanics of Inflation


  • Michael L. Wachter
  • Oliver E. Williamson


The issues that concern us are how wage and price-setting procedures vary with the nature of the good or service being exchanged and what the implications of different procedures for understanding the mechanics of inflation are. We argue that parties to nonstandardized (idiosyncratic) exchange have incentives to regularize trading relations, that this involves devising a governance structure to harmonize the exchange relation, that quantity rather than price bears the brunt of interim adjustments in these circumstances, and that long and variable price lags arise in this way. But while the effects of an inflationary disturbance are more spread out on this account -- which is to say that obligational market exchange relations does, however, complicate the problem of bringing an exogenous inflationary stimulus under control. Macroeconomics is thus linked with microeconomic contracting practices.

Suggested Citation

  • Michael L. Wachter & Oliver E. Williamson, 1978. "Obligational Markets and the Mechanics of Inflation," Bell Journal of Economics, The RAND Corporation, vol. 9(2), pages 549-571, Autumn.
  • Handle: RePEc:rje:bellje:v:9:y:1978:i:autumn:p:549-571

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    References listed on IDEAS

    1. Edwin Mansfield & John Rapoport & Anthony Romeo & Samuel Wagner & George Beardsley, 1977. "Social and Private Rates of Return from Industrial Innovations," The Quarterly Journal of Economics, Oxford University Press, vol. 91(2), pages 221-240.
    2. Mansfield, Edwin, 1980. "Basic Research and Productivity Increase in Manufacturing," American Economic Review, American Economic Association, vol. 70(5), pages 863-873, December.
    3. Berndt, Ernst R & Christensen, Laurits R, 1974. "Testing for the Existence of a Consistent Aggregate Index of Labor Inputs," American Economic Review, American Economic Association, vol. 64(3), pages 391-404, June.
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    Cited by:

    1. Dennis W. Carlton, 1982. "The Disruptive Effect of Inflation on the Organization of Markets," NBER Chapters,in: Inflation: Causes and Effects, pages 139-152 National Bureau of Economic Research, Inc.
    2. Ball, Laurence & Romer, David, 2003. " Inflation and the Informativeness of Prices," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 35(2), pages 177-196, April.
    3. Carlton, Dennis W., 1989. "The theory and the facts of how markets clear: Is industrial organization valuable for understanding macroeconomics?," Handbook of Industrial Organization,in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 1, chapter 15, pages 909-946 Elsevier.
    4. Jayendu Patel & Richard J. Zeckhauser, 1987. "Treasury Bill Futures as Hedges Against Inflation Risk," NBER Working Papers 2322, National Bureau of Economic Research, Inc.

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