Empirical studies of structural changes and inflation
During the 1990s, a number of countries successfully achieved low and stable inflation. Part of the decline reflects the large and negative output gaps in the early 1990s and favourable supply shocks later in the decade. However, inflation has remained relatively subdued as economic conditions have strengthened and some of the supply shocks have reversed. Moreover, actual inflation has remained well below the rates forecast by models based on historical data. This raises the issue of whether the inflation process has undergone structural changes and, if so, which have been the principal forces. There are several plausible reasons why such changes could have occurred. First, due to globalisation and increasing competition in both domestic and international markets, firms' pricing power may have been eroded. Put another way, prices have become more sticky or the inflation process has become more persistent. One result of such changes is that the pass-through of cost increases (including exchange rate changes) into prices has fallen. Moreover, when relative prices evolve more slowly, firms that are subject to menu costs will set prices for longer periods. Second, with inflation in the 1-3% range for some time, inflation expectations may have become more firmly anchored, particularly if the public believes that the monetary authorities will successfully resist any persistent movements of inflation away from this level. This is likely to be the case as many countries have explicitly adopted price stability as the overriding target for monetary policy. Third, increases in productivity growth may have raised the rates at which economies can grow without encountering inflationary pressures. To some extent, this change may appear as a decline in the sensitivity of inflation to measures of the output gap, which tends to be overestimated in such conditions. Another measurement or estimation problem is that higher productivity growth may be an endogenous response to increasing competition and firms' loss of pricing power. To explore these issues further, economists from nine central banks were invited to a workshop, chaired by Lars Heikensten, First Deputy Governor of Sveriges Riksbank, and held at the BIS on 31 October 2000. The papers presented at the workshop and reproduced on the following pages covered various approaches to the issues raised above. While there was a consensus that most of the structural changes involved technological progress and productivity growth, the empirical evidence is not yet firm enough to draw clear lessons for monetary policy.
|This book is provided by Bank for International Settlements in its series BIS Papers with number 03 and published in 2001.|
|Contact details of provider:|| Postal: Centralbahnplatz 2, CH - 4002 Basel|
Phone: (41) 61 - 280 80 80
Fax: (41) 61 - 280 91 00
Web page: http://www.bis.org/
More information through EDIRC
|The following chapters of this book are listed in IDEAS:|
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- George A. Akerlof & William T. Dickens & George L. Perry, 2000. "Near-Rational Wage and Price Setting and the Long-Run Phillips Curve," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 31(1), pages 1-60.
- Gruen, David & Pagan, Adrian & Thompson, Christopher, 1999.
"The Phillips curve in Australia,"
Journal of Monetary Economics,
Elsevier, vol. 44(2), pages 223-258, October.
- Flint Brayton & John M. Roberts & John C. Williams, 1999. "What's happened to the Phillips curve?," Finance and Economics Discussion Series 1999-49, Board of Governors of the Federal Reserve System (U.S.).
- Wallis, Kenneth F, 1989. "Macroeconomic Forecasting: A Survey," Economic Journal, Royal Economic Society, vol. 99(394), pages 28-61, March.
When requesting a correction, please mention this item's handle: RePEc:bis:bisbps:03. 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: (Christian Beslmeisl)
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.