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Do "Shortages" Cause Inflation?

In: Reducing Inflation: Motivation and Strategy

  • Owen Lamont

I count the number of times per month that the word `shortage' appears on the front page of The Wall Street Journal and The New York Times for the period 1969-1994. Using this as a general measure of shortages in the US economy, I test whether shortages help predict inflation. Using a variety of different specifications, I find that this time-series measure of shortages strongly predicts inflation, and contains information not captured by commodity prices, monetary aggregates, interest rates, and other proposed predictors of inflation. This suggests that disequilibrium was an important part of the adjustment of prices to macroeconomic shocks during this period.

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This chapter was published in:
  • Christina D. Romer & David H. Romer, 1997. "Reducing Inflation: Motivation and Strategy," NBER Books, National Bureau of Economic Research, Inc, number rome97-1, March.
  • This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 8887.
    Handle: RePEc:nbr:nberch:8887
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