Interrelations Between Domestic and International Theories of Inflation

  • Robert J. Gordon


National governments are held responsible by their electorates for the attainment of full employment, price stability, and real economic growth. Conflicting guidance for policy-makers is provided by two quite different approaches to inflation theory, the first school of thought which is based on the domestic Phillips curve as the fundamental driving force of inflation with little or no reference to external influences, and the second approach of the ‘monetary theory of the balance of payments’, in which the only determinants of domestic inflation are the rate of change of the exchange rate and of world prices.


Wage Rate Real Wage Money Supply Nominal Wage Phillips Curve 
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© Graduate School of Business, University of Chicago 1977

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  • Robert J. Gordon

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