IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this book chapter or follow this series

Inflation: Theory and evidence

In: Handbook of Monetary Economics

  • McCallum, Bennett T.

This survey attempts to cover an extremely broad topic by organizing . around three sets of issues: ongoing (steady state) inflation; cyclical interaction of inflation with real variables; and positive analysis of monetary policy behavior. With regard to ongoing inflation, the paper demonstrates that the principal conclusions of theoretical analysis are not highly sensitive to details of model specification, provided that the latter posits rational agents free of money illusion. Whether one assumes finite-lived or infinite-lived agents, such models suggest that steady-state inflation rates will conform fairly closely to money stock growth rates, that superneutrality is not strictly implied but departures should be minor, and that socially optimal inflation rates correspond to the Chicago Rule. The first two of these conclusions are consistent with available evidence. With regard to the cyclical interaction of inflation with aggregate output and employment, there is much less professional agreement: four classes of aggregate-supply (or Phillips curve) theories -are currently in .use by researchers and at least two have been able thus far to withstand attempts at refutation. With regard to policy, a leading question is why the authorities have behaved, over the postwar era, in a manner that has resulted in a many-fold increase in the price level in most industrialized nations. A full answer will require a better theory of the political process than is now available, but an important insight regarding inflationary bias is suggested by models that focus on the effects of "discretionary" period-by-period decision making by a monetary authority that seeks to avoid unemployment as well as inflation.

(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://www.sciencedirect.com/science/article/B7P60-4FKY4C7-8/2/36d3b0ab7fece44908b83f77dc5e85d2
Download Restriction: Full text for ScienceDirect subscribers only

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.

as
in new window

This chapter was published in:
  • B. M. Friedman & F. H. Hahn (ed.), 1990. "Handbook of Monetary Economics," Handbook of Monetary Economics, Elsevier, edition 1, volume 2, number 2.
  • This item is provided by Elsevier in its series Handbook of Monetary Economics with number 2-18.
    Handle: RePEc:eee:monchp:2-18
    Contact details of provider: Web page: http://www.elsevier.com/wps/find/bookseriesdescription.cws_home/BS_HE/description

    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.:

    as in new window
    1. Robert E. Hall, 1980. "Employment Fluctuations and Wage Rigidity," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 11(1, Tenth ), pages 91-142.
    2. Robert J. Barro, 1986. "Reputation in a Model of Monetary Policy with Incomplete Information," NBER Working Papers 1794, National Bureau of Economic Research, Inc.
    3. Barro, Robert J., 1976. "Rational expectations and the role of monetary policy," Journal of Monetary Economics, Elsevier, vol. 2(1), pages 1-32, January.
    4. Barro, Robert J & Gordon, David B, 1983. "A Positive Theory of Monetary Policy in a Natural Rate Model," Journal of Political Economy, University of Chicago Press, vol. 91(4), pages 589-610, August.
    5. Lucas, Robert E, Jr, 1973. "Some International Evidence on Output-Inflation Tradeoffs," American Economic Review, American Economic Association, vol. 63(3), pages 326-34, June.
    6. Sims, Christopher A, 1980. "Comparison of Interwar and Postwar Business Cycles: Monetarism Reconsidered," American Economic Review, American Economic Association, vol. 70(2), pages 250-57, May.
    7. Seater, John J., 1985. "Does government debt matter? A review," Journal of Monetary Economics, Elsevier, vol. 16(1), pages 121-131, July.
    8. Phelps, Edmund S & Taylor, John B, 1977. "Stabilizing Powers of Monetary Policy under Rational Expectations," Journal of Political Economy, University of Chicago Press, vol. 85(1), pages 163-90, February.
    9. Bennett T. McCallum, 1982. "The Role of Overlapping-Generations Models in Monetary Economics," NBER Working Papers 0989, National Bureau of Economic Research, Inc.
    10. James Tobin, 1980. "Stabilization Policy Ten Years After," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 11(1, Tenth ), pages 19-90.
    11. Harberger, Arnold C, 1978. "A Primer on Inflation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 10(4), pages 505-21, November.
    12. Barro, Robert J., 1978. "Unanticipated Money, Output, and the Price Level in the United States," Scholarly Articles 3450988, Harvard University Department of Economics.
    13. Barro, Robert J, 1977. "Unanticipated Money Growth and Unemployment in the United States," American Economic Review, American Economic Association, vol. 67(2), pages 101-15, March.
    14. David Cass & Menahem E. Yaari, 1965. "Individual Saving, Aggregate Capital Accumulation, and Efficient Growth," Cowles Foundation Discussion Papers 198, Cowles Foundation for Research in Economics, Yale University.
    15. Alesina, Alberto, 1987. "Macroeconomic Policy in a Two-party System as a Repeated Game," Scholarly Articles 4552531, Harvard University Department of Economics.
    16. Hamilton, James D. & Whiteman, Charles H., 1985. "The observable implications of self-fulfilling expectations," Journal of Monetary Economics, Elsevier, vol. 16(3), pages 353-373, November.
    17. Nelson, Charles R. & Plosser, Charles I., 1982. "Trends and random walks in macroeconmic time series : Some evidence and implications," Journal of Monetary Economics, Elsevier, vol. 10(2), pages 139-162.
    18. James L. Pierce, 1974. "Quantitative Analysis for Decisions at the Federal Reserve," NBER Chapters, in: Annals of Economic and Social Measurement, Volume 3, number 1, pages 11-20 National Bureau of Economic Research, Inc.
    19. Obstfeld, Maurice & Rogoff, Kenneth, 1983. "Speculative Hyperinflations in Maximizing Models: Can We Rule Them Out?," Journal of Political Economy, University of Chicago Press, vol. 91(4), pages 675-87, August.
    20. Barro, Robert J., 1977. "Long-term contracting, sticky prices, and monetary policy," Journal of Monetary Economics, Elsevier, vol. 3(3), pages 305-316, July.
    21. Bryant, John & Wallace, Neil, 1979. "The Inefficiency of Interest-bearing National Debt," Journal of Political Economy, University of Chicago Press, vol. 87(2), pages 365-81, April.
    22. King, Robert G & Plosser, Charles I, 1984. "Money, Credit, and Prices in a Real Business Cycle," American Economic Review, American Economic Association, vol. 74(3), pages 363-80, June.
    23. Frederic S. Mishkin, 1980. "Does Anticipated Monetary Policy Matter? An Econometric Investigation," NBER Working Papers 0506, National Bureau of Economic Research, Inc.
    24. Robert J. Barro, 1983. "Inflationary Finance under Discretion and Rules," Canadian Journal of Economics, Canadian Economics Association, vol. 16(1), pages 1-16, February.
    25. Brunner, Karl & Meltzer, Allan H., 1983. "Strategies and tactics for monetary control," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 18(1), pages 59-103, January.
    26. Barro, Robert J. & Fischer, Stanley, 1976. "Recent developments in monetary theory," Journal of Monetary Economics, Elsevier, vol. 2(2), pages 133-167, April.
    27. Lucas, Robert Jr., 1972. "Expectations and the neutrality of money," Journal of Economic Theory, Elsevier, vol. 4(2), pages 103-124, April.
    28. Long, John B, Jr & Plosser, Charles I, 1983. "Real Business Cycles," Journal of Political Economy, University of Chicago Press, vol. 91(1), pages 39-69, February.
    29. repec:nbr:nberre:0126 is not listed on IDEAS
    30. Jerome L. Stein, 1966. "Money and Capacity Growth," Journal of Political Economy, University of Chicago Press, vol. 74, pages 451.
    31. Tirole, Jean, 1985. "Asset Bubbles and Overlapping Generations," Econometrica, Econometric Society, vol. 53(6), pages 1499-1528, November.
    32. Lucas, Robert E, Jr, 1980. "Equilibrium in a Pure Currency Economy," Economic Inquiry, Western Economic Association International, vol. 18(2), pages 203-20, April.
    33. Calvo, Guillermo A., 1978. "Optimal seigniorage from money creation : An analysis in terms of the optimum balance of payments deficit problem," Journal of Monetary Economics, Elsevier, vol. 4(3), pages 503-517, August.
    34. Taylor, John B, 1980. "Aggregate Dynamics and Staggered Contracts," Journal of Political Economy, University of Chicago Press, vol. 88(1), pages 1-23, February.
    35. Lucas, Robert E, Jr, 1980. "Two Illustrations of the Quantity Theory of Money," American Economic Review, American Economic Association, vol. 70(5), pages 1005-14, December.
    36. Laidler, David E W & Parkin, J Michael, 1975. "Inflation: A Survey," Economic Journal, Royal Economic Society, vol. 85(340), pages 741-809, December.
    Full references (including those not matched with items on IDEAS)

    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:eee:monchp:2-18. 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: (Zhang, Lei)

    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.