Inflation pp 67-77 | Cite as

The Role of Expectations

  • P. J. Curwen
Chapter

Abstract

The problem of inflationary expectations did not figure in the early studies of the Phillips Curve. More recently, however, two contrasting views on the causes of inflation have become widespread. The first of these, to which detailed reference will be made in Chapter 8 entitled ‘The Role of the Trade Unons’, holds that the current inflation is caused by forces which were largely absent from the economy during the early 1960s. The second view, on the other hand, holds that the only thing which has changed significantly of late is the expectation of inflation held by employers and workers alike. This view is closely associated with the Monetarists, and it merits careful consideration at this juncture because it has significant implications with respect to the control of inflation. The literature on expectations is vast1 and grows at an acclerating rate. In this chapter, therefore, I propose to limit myself to a non-technical consideration of how expectations of the future rate of inflation are formed, and of how changes in such expectations can set off an inflationary spiral.

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Notes and References

  1. 1.
    See, for example, E. S. Phelps, Economica (1967), ‘Money Wage Dynamics and Labour Market Equilibrium’, in Microeconomic Foundations of Employment and Inflation Theory, ed. E. S. Phelps et al., and ‘Inflation, Expectations and Economic Theory’, in Inflation and the Canadian Experience, ed. N. Swan and D. Wilton;Google Scholar
  2. M. Friedman, American Economic Review (Mar 1968);Google Scholar
  3. R. E. Lucas, Jr and L. A. Rapping, American Economic Review (June 1969);Google Scholar
  4. S. J. Turnovsky and M. L. Wachter, Review of Economics and Statistics (Feb 1972);Google Scholar
  5. D. Laidler, ‘The Phillips Curve, Expectations and Incomes Policy’, The Current Inflation, ed. H. G. Johnson and A. R. Nobay, ch. 5; Laidler, Economica (Feb 1973);Google Scholar
  6. Laidler, Manchester School (Dec 1973);Google Scholar
  7. A. Cukierman, Econometrica (Nov 1974);Google Scholar
  8. M. Parkin, M. T. Sumner and R. A. Ward, ‘The Effects of Excess Demand, Generalized Expectations and Wage-Price Controls on Wage Inflation in the U.K.’, University of Manchester, mimeo 74/02 (Jan 1974);Google Scholar
  9. and J. A. Carlson and M. Parkin, ‘Inflation Expectations’, University of Manchester, mimeo 73/05 (June 1973).Google Scholar
  10. 3.
    Turnovsky and Wachter, Review of Economics and Statistics (Feb 1972).Google Scholar
  11. 4.
    The same data was later used by W. E. Gibson in the American Economic Review (Dec 1972).Google Scholar
  12. 8.
    Such a mechanism is tested in, for example, R. M. Solow, Price Expectations and the Behaviour of the Price Level; J. M. Parkin, Economica (Nov 1970); and Saunders and Nobay in Incomes Policy and Inflation, ed. Parkin and Sumner.Google Scholar
  13. 13.
    See, for example, Solow, Price Expectations and the Behaviour of the Price Level; Cukierman, Econometrica (Nov 1974);Google Scholar
  14. Parkin, Economica (Nov 1970);Google Scholar
  15. A. Marin, Three Banks Review (Dec 1972); H. G. Johnson, ‘Recent Developments in Monetary Theory: A Commentary’, in Money in Britain 1959?1969, ed. D. R. Croome and H. G. Johnson, and especially A. Rees, Economica (May 1970).Google Scholar
  16. 14.
    See, for example, Friedman, American Economic Review (Mar 1968);Google Scholar
  17. Phelps, Economica (Aug 1967);Google Scholar
  18. Francis, Federal Reserve Bank of St Louis Review (Aug 1974); and Parkin, Sumner and Ward, ‘The Effects of Excess Demand, Generalized Expectations and Wage-Price Controls on Wage Inflation in the U.K.’Google Scholar
  19. 15.
    See Parkin, National Westminster Bank Review (May 1974) p. 38.Google Scholar

Copyright information

© P. J. Curwen 1976

Authors and Affiliations

  • P. J. Curwen
    • 1
  1. 1.Sheffield PolytechnicUK

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