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Strain and the Inflation - Unemployment Relationship: A Conceptual and Empirical Investigation

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  • Daniel Daianu
  • Lucian-Liviu Albu

Abstract

Economic theory tells that a command system allocates resources poorly because of the impossibility of economic calculation. Therefore, once prices are freed and start to operate at quasi-equilibrium (market-clearing) levels, the hidden inefficiencies come into the open and a massive resource reallocation would have to take place. More precisely, the issue refers to the possible and probable intensity of resource reallocation in view of constraints like the balance between exit and entry in the labour market, the size of the budget deficit and the means for its non-inflationary financing, social and political stability, etc. This paper makes an attempt to conceptualise the emergence of strain emerges an economic system when relative prices change dramatically, and explores what can be implications for stabilisation policy. The start is made with the closed economy, after which the open economy case is looked at, and a possible formalised expression of strain is suggested, The distributional struggle, as a consequence of resource reallocation, is highlighted. Some modelling and empirical analysis help in substantiating the main thesis. it is contented that the line of reasoning espoused herein can help in developing an economic explanation of shocks in economic systems.
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  • Daniel Daianu & Lucian-Liviu Albu, "undated". "Strain and the Inflation - Unemployment Relationship: A Conceptual and Empirical Investigation," Ace Project Memoranda 96/15, Department of Economics, University of Leicester.
    • Handle: RePEc:wuk:leiapm:96/15
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    References listed on IDEAS

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    1. Richard Portes, 1986. "The Theory and Measurement of Macroeconomic Disequilibrium in Centrally Planned Economies," NBER Working Papers 1875, National Bureau of Economic Research, Inc.
    2. Sachs, J.D. & Woo, W.T., 1994. "Structural Factors in the Economic Reforms of China, Eastern Europe and the Former Soviet Union," Papers 94-01, California Davis - Institute of Governmental Affairs.
    3. Pierre-Richard Agénor, 1993. "Credible Disinflation Programs," IMF Policy Discussion Papers 1993/009, International Monetary Fund.
    4. Albu, Lucian-Liviu & Ivan-Ungureanu, Clementina, 1994. "Coût ou bénéfice de la transition [Cost or benefit of the transition]," MPRA Paper 14118, University Library of Munich, Germany.
    5. Mr. Daniel Daianu, 1994. "Inter-Enterprise Arrears in a Post-Command Economy: Thoughts From a Romanian Perspective," IMF Working Papers 1994/054, International Monetary Fund.
    6. Mr. Vito Tanzi, 1993. "Fiscal Policy and the Economic Restructuring of Economies in Transition," IMF Working Papers 1993/022, International Monetary Fund.
    7. Eric V. Clifton & Mohsin S. Khan, 1993. "Interenterprise Arrears in Transforming Economies: The Case of Romania," IMF Staff Papers, Palgrave Macmillan, vol. 40(3), pages 680-696, September.
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    9. Ickes, B.W. & Ryterman, R., 1992. "Inter-Enterprise Arrears and Financial Underdevelopment in Russia," Papers 9-92-6, Pennsylvania State - Department of Economics.
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    Cited by:

    1. Lucian-Liviu Albu, 2006. "Trends in inflation-unemployment relationship before and after accession to EU," Romanian Economic Business Review, Romanian-American University, vol. 1(3), pages 25-33, September.
    2. Albu, Lucian Liviu, 2008. "Strain and Inflation-Unemployment Relationship in Transitional Economies: A theoretical and empirical investigation," Working Papers of Institute for Economic Forecasting 081103, Institute for Economic Forecasting.
    3. Lucian Liviu Albu, 2010. "From Standard Macroeconomics To Non-Linear Macroeconomics," Studies in Business and Economics, Lucian Blaga University of Sibiu, Faculty of Economic Sciences, vol. 5(1), pages 5-33, april.
    4. Ciuiu, Daniel, 2012. "Copulas having Zero-Isoline and Economic Applications," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(2), pages 103-126, June.
    5. Albu, Lucian-Liviu, 2006. "A dynamic model to estimate the long-run trends in potential GDP," MPRA Paper 3708, University Library of Munich, Germany.
    6. Albu, Lucian-Liviu, 2006. "Non-linear models: applications in economics," MPRA Paper 3100, University Library of Munich, Germany.

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    More about this item

    JEL classification:

    • E27 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Forecasting and Simulation: Models and Applications
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • P24 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies - - - National Income, Product, and Expenditure; Money; Inflation
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis

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