Supply Shocks Wage Stickiness And Accommodation

The main issue discussed in the supply shock literature that followed the oil and food price shocks of the seventies was whether to accommodate. The supply shock reduces the equilibrium level of output, and monetary policy can not affect that. But in the seventies supply shocks were also followed by recessions. The question is whether monetary policy can and should be used to prevent such recessions. The paper analyzes the conditions underwhich a suppiy shock will result in recession, and the potential for monetary policy to offset the fall in output. The basic result is that a pure supply shock need not resultin a recession if the money stock is held constant.Aggregate demand effects associated with the supply shock--including the effectsof monetary policy attempts to fight the inflation caused by the supply shock--may cause a recession, as also may real wage resistance by workers. The choice of policy response to the supply shock then turns on the same basic issues as counter-cyclical policy in general, particularly the relative costs of inflation and unemployment.

The integration of market economies is one of the most remarkable features of international economics, which has important implications for macroeconomic performance in open economies. Equally important is the declining relevance of the real versus the monetary theory dichotomy. These papers focus on those aspects of monetary policy which relate to credibility and non-neutrality; the domestic adjustment to foreign shocks; the interdependence of open economies and their strategic interactions. An important section is also devoted to the innovative modelling of exchange rate dynamics.

Publisher Description

Economic Policy and the Great Stagflation discusses the national economic policy and economics as a policy-oriented science. This book summarizes what economists do and do not know about the inflation and recession that affected the U.S. economy during the years of the Great Stagflation in the mid-1970s. The topics discussed include the basic concepts of stagflation, turbulent economic history of 1971-1976, anatomy of the great recession and inflation, and legacy of the Great Stagflation. The relation of wage-price controls, fiscal policy, and monetary policy to the Great Stagflation is also elaborated. This publication is beneficial to economists and students researching on the history of the Great Stagflation and policy errors of the 1970s.

In spite of the attention paid exchange rates in recent economic debates on developing countries, relatively few studies have systematically analyzed in detail the various ramifications of exchange rate policy in these countries. In this new volume from the National Bureau of Economic Research, leading economists use rigorous models to tackle various exchange rate issues, while also illuminating policy implications that emerge from their analyses. The volume, divided into four main sections, addresses: the role of exchange rates in stabilization programs and the adjustment process; the importance of exchange rate policy during liberalization reform in developing countries; exchange rate problems relevant and unique to developing countries, illustrated by case studies; and the problems defining, measuring, and identifying determinants of real exchange rates. Authors of individual papers examine the relation between commercial policies and exchange rates, the role of exchange rate policy in stabilization programs, the effectiveness of devaluations as a policy tool, and the interaction between exchange rate terms of trade an capital flow. This research will not only prove crucial to our understanding of the role of exchange rates in developing countries, but will clearly set the standard for future work in the field.

The structure of the world economy has changed dramatically in recent years, reflecting a redefinition of U.S. interests in light of increasing foreign penetration in U.S. markets, global pressures for protectionist policies, the emergence of the newly industrializing countries, and the vulnerabilities of the international financial system. This collection of essays addresses these and other developments facing policymakers in business, government, and labor. The authors discuss policy challenges in international trade, technological competition, exchange-rate disequilibrium, Third World debt, and the role of the private sector.

The book examines various aspects of Africa's external economy by focusing on regional monetary arrangements and how they are affected by devaluation episodes. It investigates the relationship between current account balances, trade balances and trade openness with respect to regional integration and regional growth patterns, discusses obstacles to a successful regional integration and paths to structural transformation, and studies the impact of economic partnership on inclusive development. The book addresses researchers and policymakers interested in development economies and African economic development.