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- Title
Some International Evidence on Output-Inflation Tradeoffs.
- Authors
Lucas Jr., Robert E.
- Abstract
This article reports the results of an empirical study of real output-inflation tradeoffs, based on annual time-series from eighteen countries over the years 1951-1967. The propositions to be compared empirically refer to the effects of aggregate demand policies which tend to move inflation rates and output in the same direction, or alternatively, unemployment and inflation in opposite directions. The conventional Phillips curve account of this observed co-movement says that the terms of the tradeoff arise from relatively stable structural features of the economy, and are thus independent of the nature of the aggregate demand policy pursued. The alternative explanation of the same observed tradeoff is that the positive association of price changes and output arises because suppliers misinterpret general price movements for relative price changes. It follows from this view, first, that changes in average inflation rates will not increase average output, and secondly, that the higher the variance in average prices, the less favorable will be the observed tradeoff. The most natural cross-national comparison of these propositions would seem to be a direct examination of the association of average inflation rates and average output, relative to normal or full employment.
- Subjects
EMPIRICAL research; PRICE inflation; CIRCULAR velocity of money; TIME series analysis; FINANCE; MONEY
- Publication
American Economic Review, 1973, Vol 63, Issue 3, p326
- ISSN
0002-8282
- Publication type
Article