The Macroeconomics of Inflation Non-neutrality

James Pemberton

Economic Journal, 1989, vol. 99, issue 394, 62-82

Abstract: Inflation (non)neutrality can only be properly considered in a complete macro model, but most existing treatments use partial equilibrium approaches. This paper develops an open economy macro model incorporating labor markets and the government budget constraint, as well as the product and domestic asset markets that normally feature in the neutrality literature. This model is used to examine stability and long-run inflation multipliers with various policy combinations. Numerical simulations show that the quantitative importance of nonneutralities varies across different policy combinations; in some cases nonneutralities are very significant. Copyright 1989 by Royal Economic Society.

Date: 1989
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