Strain and Inflation-Unemployment Relationship: A conceptual and empirical investigation

Daniel Daianu and Lucian Albu ()

Working Papers of Institute for Economic Forecasting from Institute for Economic Forecasting

Abstract: Economic theory tells that a command system allocates resources poorly because of the impossibility of economic calculation. Therefore, once prices are freed and start to operate at quasi-equilibrium (market-clearing) levels, the hidden inefficiencies come into the open and a massive resource reallocation would have to take place. More precisely, the issue refers to the possible and probable intensity of resource reallocation in view of constraints like the balance between exit and entry in the labour market, the size of the budget deficit and the means for its non-inflationary financing, social and political stability, etc. This paper makes an attempt to conceptualise the emergence of strain emerges an economic system when relative prices change dramatically, and explores what can be implications for stabilisation policy. The start is made with the closed economy, after which the open economy case is looked at, and a possible formalised expression of strain is suggested, The distributional struggle, as a consequence of resource reallocation, is highlighted. Some modelling and empirical analysis help in substantiating the main thesis. it is contented that the line of reasoning espoused herein can help in developing an economic explanation of shocks in economic systems.

Keywords: open economy; Phillips curve; long-run atractor; fractal dimension (search for similar items in EconPapers)
JEL-codes: C61 C63 E24 E27 P24 (search for similar items in EconPapers)
Pages: 44 pages
Date: 2008-12
New Economics Papers: this item is included in nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Working Paper: Strain and the inflation - unemployment relationship: a conceptual and empirical investigation (1996)
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Persistent link: https://EconPapers.repec.org/RePEc:rjr:wpiecf:081201

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