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Improvements in Macroeconomic Stability: The Role of Wages and Prices

  • John B. Taylor

This paper compares macroeconomic performance in the United States from 1891 through 1914 with the period after the Second World War by estimating reduced form autoregressions for prices, wages and output, by looking at their moving average representations, and by giving them simple structural interpretations. The results show that the impulses to the economic system were smaller in the later period, but the propagation mechanisms are much slower and more drawn out. The smaller shocks are therefore translated into larger and more prolonged fluctuations in output and inflation than would occur if the earlier dynamics were applicable in the later period. A tentative explanation for the changes in the dynamics is a slower speed of wage and price adjustment combined with a different accommodative stance for the monetary system.

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File URL: http://www.nber.org/papers/w1491.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 1491.

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Date of creation: Nov 1984
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Publication status: published as Taylor, John B. "Improvements in Macroeconomic Stability: The Role of Wages and Prices." The American Business Cycle: Continuity and Change, edited by Robert J. Gordon. Chicago: University of Chicago Press, 1986, pp. 639-659 and 676-677.
Handle: RePEc:nbr:nberwo:1491
Note: EFG
Contact details of provider: Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
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  1. Taylor, John B., 1980. "Output and price stability: An international comparison," Journal of Economic Dynamics and Control, Elsevier, vol. 2(1), pages 109-132, May.
  2. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January.
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