Inflation Theory and Anti-Inflation Policy: Proceedings of a Conference held by the International Economic Association at Saltsjöbaden, Sweden

554 Pages·1977·60.37 MB·English

by  Erik Lundberg (eds.)

Inflation Theory and
Anti-inflation Policy
Proceedings of a Conference held by the
International Economic Association at
Saltsjobaden, Sweden
edited by
ERIK LUNDBERG
INTERNATIONAL ECONOMIC ASSOCIATION
CONFERENCE VOLUMES. Numbers 1-50
NUMBER 47
Inflation Theory and Anti-Inflation
Policy
© International Economic Association 1977
Softcover reprint of the hardcover 1st edition 1977
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civil claims for damages.
First published 1977
This 50-volume set reprinted 1986 jointly by
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DOI 10.1007/978-1-349-03260-0
Contents
Acknowledgements vii
List of Participants ix
Introduction Erik Lundberg xi
PART ONE: PROBLEMS OF INFLATION AND ITS ANALYSIS
I Inflation: a Review of the Issues Michael Parkin and Alexander
K Swoboda 3
Discussion 30
2 Recent Developments in the Theory of Inflation and Unemploy-
ment Robert J. Gordon 42
3 Causes and Origins of the Current Worldwide Inflation Hans
Genberg and Alexander K. Swoboda 72
~ro~oo ~
4 The Role of Money in the Inflation Analysis Helmut Frisch 109
Discussion 130
5 Some Problems of Current Price Movements Revold Entov 135
Discussion 146
PART TWO: INTERNATIONAL ASPECTS OF INFLATION
6 International Aspects of Inflation J. Marcus Fleming 153
Discussion 173
7 Policy Autonomy of Small Countries Hans Genberg 183
8 Inflation and the Exchange Rate Regime W. M Corden 209
Discussion 223
9 World Inflation under Flexible Exchange Rates Emil-Maria 238
aaassen
Discussion 257
PART THREE: THE EFFECTS OF INFLATION
10 Inflation and Income Distribution James S. Duesenberry 265
Discussion 278
vi Contents
11 The Welfare Implications of Uneven Inflation Dwight M. Jaffee 285
and Ephraim Kleiman
Discussion 308
12 The Welfare Costs of Inflation in Neoclassical Theory David
lAidler 314
Discussion 3 29
13 Effects of Inflation on Public Revenue and Expenditure Fritz
Neumark 338
14 The Growth of the Public Sector and Inflation Pressure Adolf
Nussbaumer 350
Discussion 375
PART FOUR: POUCIES FOR INFLATION
15 Indexation in Israel Reuven Brenner and Don Patin kin 387
Discussion 409
16 A Revaluation of the Theory of Repressed Inflation in the light
of the Experience of Some Socialist Countries Bela Csikbs-Nagy 417
Discussion 431
17 Why have General Anti-inflation Policies not Succeeded?
P.M. Oppenheimer 445
Discussion 460
18 Incomes Policies Pieter de Wolff 471
Discussion 482
19 Aspects of the Theory of Indexed Bonds David Levhari and
Nissan Liviatan 488
20 On the Non-existence of Privately Issued Bonds in the United
States Capital Market Stanley Fischer 502
Discussion 519
21 A Summing Up Douglas Hague 530
Index 539
Acknowledgements
The conference that is recorded in this volume derived its initial impetus and
choice of subject from the Jubilee of the Swedish Riksbank which was being
celebrated in 1975. As part of that celebration, the International Economic
Association was invited to organise a conference on the very topical subject
of inflation--a subject of great concern to the banking community in all
countries-and the Riksbankens J ubileumsfund bore the largest share of its
expenses. We are greatly indebted to Mr Kristen Rickman, Governor ofthe
Sviriges Riksbank, for his interest and support in all the work of the con
ference.
The International Economic Association conference followed immediately
after another conference on a kindred subject organised by the Institute for
International Economic Studies; by permission of that Institute we print in
this volume two papers-those by Dr. Corden and by Dr. Claassen-which were
available to both conferences and received interesting and important discussion
in our own.
The planning of the I.E. A. conference was primarily the responsibility of
Professor Erik Lundberg, one of the most distinguished of Swedish economists
and formerly President of our Association, whose name very properly appears
on the title-page.
Finally we record, as always, our debt to our two chief sponsors, UNESCO
whose regular support and annual contribution has been vitally important to
our work, and the Ford Foundation whose grant has again contributed signi
ficantly to making it possible to hold this and the whole series of conferences
in which economists from a very wide variety of countries have attempted to
wrestle with the major problems of the world.
List of Participants
Professor Odd Aukrust, Central Bureau of Statistics, Oslo, Norway
Professor Alexander Bajt, University of I.Jubljana, Yugoslavia
Professor Oleg Bogomolov, Institute of Economics of the World Socialist
System, Academy of Sciences of the USSR, Moscow
Professor H. William Branson, Woodrow Wilson School, Princeton University,
USA.
Mr. Reuven Brenner, Hebrew University Jerusalem, Israel
Professor Martin Bronfenbrenner, Duke University, Durham, N.C., USA
Professor Emil-Maria Claassen, University of Paris, Dauphine, France
Dr. W. M. Corden, Oxford University, England
Dr. France Cotula Banca d'Italia, Rome, Italy
Professor Bela Csik6s-Nagy, Hungarian Economic Association, Budapest,
Hungary
Professor Wim Driehuis, Universiteit van Amsterdam, Amsterdam, Holland
Professor James S. Duesenberry, Harvard University, Cambridge, USA
Professor Revold Entov, Institute of the World Economy and International
Relations, Moscow
Professor Luc Fauvel, Universite de Paris, France
Professor Stanley Fischer, Massachusetts Institute of Technology, Cambridge,
USA
Professor Jean Paul Fitoussi, Universite Louis Pasteur, Strasbourg, France
Professor Marcus Fleming, International Monetary Fund, Washington, USA
Professor Helmut Frisch, Technical University of Vienna, Austria
Professor Hans Genberg, Institute of International Studies, Geneva, Switzerland
Professor Herbert Giersch, Institut fiir Weltwirtschaft, German Federal Republic
Professor Robert J. Gordon, Northwestern University, Evanston, USA
Professor Douglas Hague, Manchester Business School, England
Professor Dwight M. Jaffee, Princeton University, USA
Professor Lars Jonung, Nationaleknonmiska Institutionen, Lunds Universitet,
Sweden
Mr. Michael Kaser, Oxford University, England
Professor Ephraim Kleiman, Hebrew University, Jerusalem, Israel
Professor David Laidler, University of Western Ontario, Canada
Professor David Levhari, The Hebrew University, Jerusalem, Israel
Professor Nissan Liviatan, Hebrew University, Jerusalem, Israel
Professor Erik Lundberg, Stockholm School of Economics, Sweden
Professor Fritz Machlup, New York University, USA
X List of Participants
Professor Edmond Malinvaud, I.N.S.E.E., Paris, France
Professor Fritz Neumark, J. W., Goethe-University, Frankfurt/Main, German
Federal Republic
Professor Adolf Nussbaumer, Institute of Economics, University of Vienna,
Austria
Mr. P.M. Oppenheimer, Christ Church, Oxford, England
Professor Michael Parkin, University of Western Ontario, Canada
Professor Don Patinkin, Hebrew University, Jerusalem, Israel
Professor J. J. Paunio, University of Helsinki, Finland
Mr. Nicolas Plessz, OCED, Paris, France
Professor Stanislaw Polaczek, Warsaw University, Poland
Professor Sir Austin Robinson, Cambridge University, England
Professor Ingemar Stahl, Lund University, Sweden
Professor Alexander K. Swoboda, Institute of International Studies, Geneva,
Switzerland
Professor Shigeto Tsuru, Hitotsubashi University, Tokyo, Japan
Professor Pieter de Wolff, University of Amsterdam, Holland
Observers
Mr. John P. Hardt, library of Congress, Washington, USA
Professor Yoshio Miyake, Rikkyo University, Tokyo, Japan
Professor Franco Modigliani, Massachusetts Institute of Technology, Cambridge,
USA
Dr. Michael Mussa, University of Rochester, Rochester, USA
Mr. Goran Wikner, Swedish Savings Banks, Stockholm, Sweden
Professor Gosta Rehn, Institute of Social Research, Stockholm, Sweden
Mr. John R. Stark, Joint Economic Committee, US Congress, Washington,
USA
Mr. R. Dornbusch, Massachusetts Institute of Technology, Cambridge, USA
Mr. Lars Cairnfors, Stockholm
Mr. Lars Svensson, University of Stockholm, Sweden
Professor V. Mshvenieradze, UNESCO, Paris, France
Introduction
Erik Lundberg
STOCKHOLM SCHOOL OF ECONOMICS
The I.E.A. conference on 'Inflation and Anti-Inflationary Policy' took place
in Saltsjobaden (August 28-September 3, 1975). A number of economists
from many countries, plagued by inflation in varying degrees, participated.
The conference was partly linked to another meeting, a Seminar on 'Flexible
Exchange Rates and Stabilization Policy,'1 which took place just before at the
same venue. Some of the participants (and some of the papers) were common
to both meetings.
The economic and social problems of inflation are serious in many respects
and on several levels of difficulty: first, it is difficult to give precise meaning
to an account of the origin or causes of inflation; second, the consequences of
inflation are manifold, economic, social and political; third, there are many
types of analysis and alternative models to assist an understanding of the
process of inflation, both on a national and on a world level.
Inflation, simply defined as a significant rate of rise of the general price
level, is undesirable as such. It is generally regarded as a kind of malfunctioning
of the working of an economy as well as a failure of economic policy.
There is in all countries a kind of general learning process of how to live
with a certain rate of inflation varying within relatively narrow margins over
the business cycle. That was the experience of most Western countries over
nearly two decades after the Korean war. But then came an unexpected
acceleration of the price rise from the end of the sixties, followed by great
uncertainty as to the future course after 1974.
There are various kinds of welfare costs following especially from un
expected accelerations and retardations of the rate of inflation. These are
nearly always unexpected by most people, and even a stable inflation rate
is not often planned for by large groups of people, who are thus not prepared
to meet the repercussions of inflation.
We economists construct models to help us in understanding better, and if
possible measuring, the main effects of inflation on welfare, paying special
attention to changes in income and wealth distribution. We observe and
theorise about leads and lags in the price-wage spiral and like to emphasise
effects from changing relative prices on profits as well as on profitability ex
pectations. Consequences for investments, resource allocation and productivity
may be considered among the welfare effects from an inflationary process.
There are good possibilities of model building and theorising about these