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Moosa, S. The Double Whammy of Stagflation and Uncertainty. Credit and Capital Markets – Kredit und Kapital, 16(3), 297-315. https://doi.org/10.3790/ccm.16.3.297
Moosa, Suleman A. "The Double Whammy of Stagflation and Uncertainty" Credit and Capital Markets – Kredit und Kapital 16.3, 1983, 297-315. https://doi.org/10.3790/ccm.16.3.297
Moosa, Suleman A. (1983): The Double Whammy of Stagflation and Uncertainty, in: Credit and Capital Markets – Kredit und Kapital, vol. 16, iss. 3, 297-315, [online] https://doi.org/10.3790/ccm.16.3.297
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The Double Whammy of Stagflation and Uncertainty

Moosa, Suleman A.

Credit and Capital Markets – Kredit und Kapital, Vol. 16 (1983), Iss. 3 : pp. 297–315

1 Citations (CrossRef)

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Article Details

Publisher Name
Duncker & Humblot
DOI
https://doi.org/10.3790/ccm.16.3.297
Language
Multiple languages
Pages
19

Moosa, Suleman A.

Cited By

  1. Causes of Contemporary Stagnation

    Price and Quantity Variability under Stagflation

    Gahlen, Bernhard

    1986

    https://doi.org/10.1007/978-3-642-82795-2_3 [Citations: 0]

References

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  39. Fischer, S., 1977: “Long Term Contracts, Rational Expectations and the Optimal Money Supply Rule,” Journal of Political Economy, 85, February.  Google Scholar
  40. Fischer, S., 1978: “On Activist Monetary Policy with Rational Expectations,” in Rational Expectations and Economic Policy, edited by S. Fischer (The University of Chicago Press, 1980).  Google Scholar
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  43. Gordon, D. F., 1974: “A Neo-classical Theory of Keynesian Unemployment,” Economic Inquiry, December.  Google Scholar
  44. Gordon, R. J., 1971: “Steady Anticipated Inflation: Mirage or Oasis,” Brookings Papers on Economic Activity, 2.-- Gordon, R. J., 1975: “The Demand and Supply of Inflation,” Journal of Law and Economics, December.  Google Scholar
  45. Gordon, R. J., 1976: “Recent Developments in the Theory of Inflation and Unemployment,” Journal of Monetary Economics, 2.  Google Scholar
  46. Hall, R., 1975: “The Rigidity of Wages and the Persistence of Unemployment,” Brookings Papers on Economic Activity, 2.  Google Scholar
  47. Klein, L., 1978: “The Supply Side,” American Economic Review.  Google Scholar
  48. Levi, M. D., and J. H. Makin, 1980: “Inflation Uncertainty and the Phillips Curve: Some Empirical Evidence,” American Economic Review, December.  Google Scholar
  49. Logue, D., and MWillet, T., 1976: “A Note on the Relation Between the Mean and the Variability of Inflation,” Economica, 43, 1976.  Google Scholar
  50. Lucas, R. E., Jr., 1972: “Expectations and the Neutrality of Money,” Journal of Economic Theory, 4, April.  Google Scholar
  51. Lucas, R. E., Jr., 1973: “Some International Evidence on Output-Inflation Tradeoffs,” American Economic Review, June.  Google Scholar
  52. Lucas, R. E., Jr., 1978: “Rules, Discretion, and the Role of the Economic Advisor,” in Rational Expectations and Economic Policy, edited by S. Fischer (The University of Chicago Press, 1980).  Google Scholar
  53. Mullineaux, D. J., 1980: “Unemployment, Industrial Production, and Inflation Uncertainty in the United States, “The Review of Economics and Statistics, May.  Google Scholar
  54. Muth, J., 1961: “Rational Expectations and the Theory of Price Movements,” Econometrica, 29.  Google Scholar
  55. Nickell, S. J., 1977: “The Influence of Uncertainty on Investment: Is it Important?,” Economic Journal, March. - Okun, A. M., 1971: “The Mirage of  Google Scholar
  56. Steady Inflation,” Brookings Papers on Economic Activity, 2.  Google Scholar
  57. Okun, A. M., 1975: “Inflation: Its Mechanics and Welfare Costs,” Brookings Papers on Economic Activity, 2.  Google Scholar
  58. Okun, A. M., 1980: “The Invisible Handshake and the Inflationary Process,”  Google Scholar
  59. Challenge, January/February.  Google Scholar
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  61. Phelps, E. S., 1967: “Phillips Curves, Expectations of Inflation, and Optimal Unemployment Over Time,” Economica, August.  Google Scholar
  62. Phelps, E. S., and Taylor, J. B., 1977: “Stabilizing Powers of Monetary Policy Under Rational Expectations,” Journal of Political Economy, 85, February. the Natural Rate of Unemployment,” Brookings Papers on Economic Activity, 2.  Google Scholar
  63. Sargent, T., 1973: “Rational Expectations, the Real Rate of Interest, and  Google Scholar
  64. Solow, R., 1979: “Alternative Approaches to Macroeconomic Theory: A Partial View,” The Canadian Journal of Economics, August.  Google Scholar
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Abstract

The Double Whammy of Stagflation and Uncertainty

Empirical studies have been unable to provide support for the neo-classical proposition that the relative variability of inflation is invariant to changes in the general rate of inflation. Inflation is non-neutral. They have uncovered relationships between the relative variability of inflation and the mean rate of inflation, general price instability or variability, and the rate of unanticipated inflation and real economic growth. However, we find that all these right-hand-side explanatory variables are highly correlated, in that inflation was associated with a lower rate of economic growth (stagflation) on the one hand and increased variabilities of inflation and economic growth on the other. These associations appear to be due to stop-go monetary policies operating in a world characterized by some wage-price stickiness, which produced relatively greater declines in economic growth over inflation during the typically temporary monetary contractions. These stagflation-related increases in the variabilities of inflation and economic growth predictably made accurate forecasting of the inflation rate increasingly difficult with increases in the inflation rate; this is reflected in the estimated positive relation between inflation surprises and unbiased inflation forecasts. This short and longer run positive relation between inflation expectations and inflation surprises raises a question about the invariance conclusions of flex-price macroeconomic rational expectation models, since the anticipated inflation level-related increase in the variance of even unbiased forecasts errors will adversely affect the behavior of risk averse economic agents. Consequently, real variables such as investment and unemployment will also be adversely affected in the short run. Furthermore, because the increased variability makes it more difficult to accurately anticipate inflation, the ability of real wages to adjust fully is impeded, causing the unemployment rate to increase also in the longer run. Moreover, if labor and capital are complements then even the equilibrium unemployment rate will increase with increases in the anticipated rate of inflation

Table of Contents

Section Title Page Action Price
Suleman A. Moosa: The Double Whammy of Stagflation and Uncertainty 297
I. Introduction and Overview 297
II. The Empirical Evidence 299
III. Summary 310
References 311
Zusammenfassung: Die wechselseitige Verstärkung von Stagflation und Unsicherheit 313
Summary: The Double Whammy of Stagflation and Uncertainty 313
Résumé: Le double cercle vicieux de la stagflation et de l'incertitude 314

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