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Incomes Policies in an Open Economy: Domestic and External Interactions

  • John Sheahan
Chapter

Abstract

Is it possible to have an independent national incomes policy in an open economy? The question is closely linked to a more general issue of analysis and evidence: Are prices determined primarily by current changes in demand and supply in individual markets, as economists have from time to time suggested, or are they based primarily on wage costs? If the former, an incomes policy in an open economy is an extremely doubtful proposition. If the latter, it is at least conceivable to make important headway in restraining national inflation through incomes policy.

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Notes

  1. 1.
    Michael Parkin, “A ‘Monetarist’ Analysis of the Generation and Transmission of World Inflation: 1958–71,” American Economic Review, February 1977: 164–71Google Scholar
  2. 2.
    Harold T. Shapiro, “Inflation in the United States,” in ibid., pp. 267–94. The point was emphasized by William Nordhaus as a general criticism of the present article, at the Middlebury College conference “New Approaches to an Incomes Policy for the United States,” April 1979.Google Scholar
  3. 3.
    Sidney Weintraub, Capitalism’s Inflation and Unemployment Crisis (Reading, Mass.: Addison-Wesley, 1977), pp. 59–62, quotation from p. 59.Google Scholar
  4. 4.
    Odd Aukrust, “Inflation in the Open Economy: A Norwegian Model,” and Lars Calmfors, “Inflation in Sweden,” both in Krause and Salant, World-Wide Inflation, pp. 107–68 and 493–544; Assar Lindbeck, “Imported and Structural Inflation and Aggregate Demand: The Scandinavian Model Reconstructed,” in Inflation and Employment in Open Economies, edited by Lindbeck ( Amsterdam: North-Holland, 1979 ), pp. 13–40.Google Scholar
  5. 5.
    Ferdinand E. Banks, The International Economy: A Modern Approach ( Lexington, Mass.: Heath-Lexington, 1979 ), pp. 47–81Google Scholar
  6. 6.
    Aukrust, “Inflation in the Open Economy,” pp. 109–12.Google Scholar
  7. 7.
    Ibid., p. 166.Google Scholar
  8. 8.
    William Nordhaus and John Shoven, “Inflation 1973: The Year of Infamy,” Challenge May-June 1974: 14–22.Google Scholar
  9. 9.
    Irving Kravis and Robert Lipsey, “Export Prices and the Transmission of Inflation,” American Economic Review, February 1977: 155–63Google Scholar
  10. 10.
    Lindbeck, “Imported and Structural Inflation and Aggregate Demand,” pp. 23–25.Google Scholar
  11. 11.
    Rudiger Dornbusch and Paul Krugman, “Flexible Exchange Rates in the Short Run,” Brookings Papers on Economic Activity 1976:3, pp. 537–75, especially pp. 566–68.Google Scholar
  12. 12.
    Mordechai Kreinin, “The Effect of Exchange Rate Changes on the Prices and Volumes of Foreign Trade,” Staff Papers, International Monetary Fund, July 1977, pp. 297–329.Google Scholar
  13. 13.
    Isard, “How Far Can We Push the Law of One Price?” p. 942.Google Scholar
  14. 14.
    Ibid., p. 945.Google Scholar
  15. 15.
    Anne Romanis Braun, “Some Reflections on Incomes Policy and the International Payments System,” International Monetary Fund Research Paper, August 1979; John Sheahan, The Wage Price Guideposts ( Washington, D.C.: Brookings, 1967 ), pp. 96–103.Google Scholar
  16. 16.
    Braun, “Some Reflections on Incomes Policy,” section 3.Google Scholar
  17. 17.
    W.M. Corden, Inflation, Exchange Rates and Economy (Chicago: University of Chicago Press, 1977), chapters 7–9.Google Scholar
  18. 18.
    Brian L. Scarfe, Cycles, Growth and Inflation (New York: McGraw-Hill, 1977), p. 257. See discussion pp. 247–55 and 272–74, and his “A Model of the Inflation Cycle in a Small Open Economy,” Oxford Economic Papers 25 (July 1973): 192–203.Google Scholar
  19. 19.
    Sheahan, The Wage Price Guideposts pp. 67–72.Google Scholar
  20. 20.
    Carl Van Duyne, “Are Export Controls Anti-Inflationary?” abstract of article in preparation for the annual meetings of the American Economic Association, Atlanta, December 1979. See also Edward Fried and Philip Tezise, “The United States in the World Economy,” in Setting National Priorities: The Next Ten Years, edited by Henry Owen and Charles Schultze ( Washington, D.C.: Brookings, 1976 ), pp. 167–226.Google Scholar
  21. 21.
    Van Duyne, “The Macroeconomic Effects of Commodity Market Disruptions in Open Economies,” Journal of International Economics, forthcoming, 1979.Google Scholar

Copyright information

© Springer Science+Business Media Dordrecht 1981

Authors and Affiliations

  • John Sheahan

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