Abstract
The purpose of the paper is to study the role of expectations in the context of a macroeconomic model of the standard type, consisting of a demand, a supply and a financial submodel. Inflationary expectations are introduced via a supply-price-function of labor (a modified Phillipscurve). In contrast to many other models inflationary expectations are endogenous in this paper; they are incorporated into the labormarket. We assume that real demand is increased exogenously and study the change of the equilibrium position in the three submodels. The change of equilibrium will affect the actual price level and will be reflected in the price expectations. The main result is that a fully anticipated change in the price level has no real effects (i.e. no employment and no production effect). Only failures to anticipate correctly the rate of inflation will influence the real economy. For the financial submodel, the condition for real effects is that the interest flexibility of the demand for real balances is (numerically) larger than that of the demand for bonds.
Revised version of a paper presented at the Conference “Inflation in Small Countries”, Vienna, 8th – loth November 1974. I am grateful to valuable comments by Michael Parkin and Ishag Nadiri.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
Preview
Unable to display preview. Download preview PDF.
References
R.G. Lipsey: The Relation between Unemployment and the Rate of Change of Money Wage Rates in the United Kingdom 1862-1957 Economica (1960)
B. Hansen: Excess Demand, Unemployment, Vacancies and Wages, Q.J.E. (1971)
R.M. Solow: Price Expectations and the Behavior of the Price Level (1969)
R.J. Gordon: “Inflation in Recession and Recovery” Brooking Papers on Economic Activity (1971)
M. Friedman: The Role of Monetary Policy, AER (1968) p. 1–17
M. Friedman: A Theoretical Framework of Monetary Analysis: JPE (1970)
Don Patinkin: Money, Interest and Prices, New York (1965)
R.J. Ball, R.G. Bodkin: “Income, the Price Level and Generalized Multipliers in Keynesian Economics” in R.G. Bodkin. The Wage-Price-Productivity Nexus (1966)
Branson: Macroeconomic Theory and Policy, New York (1972)
E. Phelps Et al.: Microeconomic Foundations of Employment and Inflation Theory, New York (1970)
A. Alchian: Information Costs, Pricing and Resource Unemployment, in E. Phelps et al. “Microeconomic Foundations of Employment and Inflations Theory” (1970)
H. Otruba: The Optimum Quantity of Money — A Delayed Criticism, Zf.N. (1974)
J.M. Keynes: The General Theory of Employment, Interest and Money, London (1936)
A. Leijonhufvud: On Keynesian Economics and the Economics of Keynes, New York (1968) p. 94
St.J. Turnovsky: On the Role of Inflationary Expectations in a Short-Run Macroeconomic Model, The Economic Journal (June 1974)
K. Brunner and A. Melzer: Mr. Hicks and the “Monetarists”, Economica 1973 Monetary and Fiscal Policy in Open, Interdependent Economies with Fixed Exchange Rates Paris-Dauphine Conference (1974, forthcoming)
J. Stein: Unemployment, Inflation and Monetarism. AER (1974)
Author information
Authors and Affiliations
Editor information
Editors and Affiliations
Rights and permissions
Copyright information
© 1976 Springer-Verlag Berlin · Heidelberg
About this paper
Cite this paper
Frisch, H. (1976). Inflationary Expectations in a Macroeconomic Model. In: Frisch, H. (eds) Inflation in Small Countries. Lecture Notes in Economics and Mathematical Systems, vol 119. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-46331-0_10
Download citation
DOI: https://doi.org/10.1007/978-3-642-46331-0_10
Publisher Name: Springer, Berlin, Heidelberg
Print ISBN: 978-3-540-07624-7
Online ISBN: 978-3-642-46331-0
eBook Packages: Springer Book Archive