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Do "Shortages" Cause Inflation?

  • 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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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 5402.

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Date of creation: Dec 1995
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Publication status: published as Reducing Inflation: Motivation and Strategy, C. Romer and D. Romer, eds.,(Chicago: University of Chicago Press, 1997)
Handle: RePEc:nbr:nberwo:5402
Note: ME
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  1. Ball, L. & Mankiw, N.G., 1992. "Asymmetric Price Adjustment and Economic Fluctuations," Harvard Institute of Economic Research Working Papers 1602, Harvard - Institute of Economic Research.
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  11. Guy Debelle & Owen Lamont, 1996. "Relative Price Variability and Inflation: Evidence from US Cities," NBER Working Papers 5627, National Bureau of Economic Research, Inc.
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  15. Mankiw, N Gregory, 1985. "Small Menu Costs and Large Business Cycles: A Macroeconomic Model," The Quarterly Journal of Economics, MIT Press, vol. 100(2), pages 529-38, May.
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