Stagflation, Persistent Unemployment and the Permanence of Economic Shocks
Karl Brunner †,
Alex Cukierman () and
Credit and Capital Markets, 2019, vol. 52, issue 4, 477-504
When changes occur, people do not know how long they will persist. Using a simple stochastic structure that incorporates temporary and permanent changes in an augmented IS-LM model, we show that rising prices and rising unemployment – stagflation – is likely to follow a large permanent reduction to productivity. All markets clear and all expectations are rational. People learn gradually the permanent values which the economy will reach following a permanent shock and gradually adjust anticipations. In our model, optimally perceived permanent values take the form of a Koyck lag of past observations.
References: Add references at CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
Journal Article: Stagflation, persistent unemployment and the permanence of economic shocks (1980)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:kuk:journl:v:52:y:2019:i:4:p:477-504
Access Statistics for this article
More articles in Credit and Capital Markets from Credit and Capital Markets
Bibliographic data for series maintained by Credit and Capital Markets ().