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Towards an understanding of the real effects and costs of inflation

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  • Stanley Fischer
  • Franco Modigliani

Abstract

The organization of the paper is simple. We start by examining the real effects of anticipated inflation in an economy that has fully adapted to inflation. In particular, in this economy: (i) public institutions are fully attuned to inflation (or inflation proof), (ii) the same is true of private institutions, (iii) current and future inflation is fully reflected in inherited contracts, and (iv) future inflation is fully reflected in contracts for the future. After we have discussed the effects of anticipated inflation in this environment, we examine the real effects of inflation that arise as the assumptions (i) to (iv) are dropped one after the other. The effects cumulate in the sense that those present in the economy that has fully adapted to inflation are also present in economies with non-inflation proof institutions, and so on.
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Suggested Citation

  • Stanley Fischer & Franco Modigliani, 1978. "Towards an understanding of the real effects and costs of inflation," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 114(4), pages 810-833, December.
    • Handle: RePEc:spr:weltar:v:114:y:1978:i:4:p:810-833
    DOI: 10.1007/BF02696381
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    References listed on IDEAS

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    1. Aaron, Henry J, 1976. "Inflation and the Income Tax," American Economic Review, American Economic Association, vol. 66(2), pages 193-199, May.
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