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An Industrial Interpretation of Inflationary Unemployment
Allsbrook, Ogden O. | Gilliam, Kenneth P.
Credit and Capital Markets – Kredit und Kapital, Vol. 16 (1983), Iss. 4 : pp. 479–487
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Allsbrook, Ogden O.
Gilliam, Kenneth P.
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Abstract
An Industrial Interpretation of Inflationary Unemployment
This paper advances the hypothesis that recurring business cycles may spawn increasingly severe phases of concurrent inflation and recession. The model employed is the Keynes-Hicks-Hansen-Smith paradigm. By including the pricing and output behavior of firms which become gradually more monopolistically competitive as business cycles unfold, a case is made for increasingly severe output restriction, via advertising, and subsequently increasingly higher price levels during successive recessions. Evidence now exists that this hypothesis is tenable. In one study, the average surviving firm during recession gained approximately half a percent of market share compared to more than double that for a surviving firm which increased advertising costs by 28% or more.