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A Simple Analytical Model of the Adverse Real Effects of Inflation

Author

Listed:
  • Eduardo Bastian

    () (Federal University of Rio de Janeiro (UFRJ))

  • Mark Setterfield

    () (Department of Economics, New School for Social Research)

Abstract

The essential insight advanced in this paper is that the claim that inflation can impair growth makes most sense in the context of a monetary production economy, wherein a role for money in the determination of real activity is posited from the very start. We construct a model of inflation and growth that distinguishes between the properties of various qualitatively different inflation regimes. It is then shown how some of these regimes, by undermining confidence in various nominal contracts that are central to the process of accumulation in a monetary production economy, can adversely affect growth.

Suggested Citation

  • Eduardo Bastian & Mark Setterfield, 2015. "A Simple Analytical Model of the Adverse Real Effects of Inflation," Working Papers 1519, New School for Social Research, Department of Economics.
  • Handle: RePEc:new:wpaper:1519
    as

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    File URL: http://www.economicpolicyresearch.org/econ/2015/NSSR_WP_192015.pdf
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    References listed on IDEAS

    as
    1. Stanley Fischer & Franco Modigliani, 1978. "Towards an understanding of the real effects and costs of inflation," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 114(4), pages 810-833, December.
    2. Oreiro, José Luís & Neves, André Lucio, 2010. "Acumulação de capital, utilização da capacidade produtiva e inflação. Uma análise a partir de um modelo pós-keynesiano não linear," Revista Economia e Sociedade, Instituto de Economia, Universidade Estadual de Campinas (UNICAMP), vol. 39, pages 1-28, May.
    3. Rowthorn, R E, 1977. "Conflict, Inflation and Money," Cambridge Journal of Economics, Oxford University Press, vol. 1(3), pages 215-239, September.
    4. Lucas, Robert E, Jr, 1975. "An Equilibrium Model of the Business Cycle," Journal of Political Economy, University of Chicago Press, vol. 83(6), pages 1113-1144, December.
    5. Friedman, Milton, 1977. "Nobel Lecture: Inflation and Unemployment," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 451-472, June.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Eduardo F. Bastian & Mark Setterfield, 2017. "Nominal exchange rate shocks and inflation in an open economy: towards a structuralist inflation targeting agenda," Working Papers 1720, New School for Social Research, Department of Economics.

    More about this item

    Keywords

    Inflation; strato-inflation; hyper-inflation; indexation; conflicting claims; uncertainty; growth.;

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian

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