EconPapers    
Economics at your fingertips  
 

Stagflation, Persistent Unemployment and the Permanence of Economic Shocks

Karl Brunner €, Alex Cukierman () and Allan H. Meltzer €

Credit and Capital Markets, 2019, vol. 52, issue 4, 477-504

Abstract: 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.

Date: 2019
References: Add references at CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
https://doi.org/10.3790/ccm.52.4.477 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

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 ().

 
Page updated 2020-04-28
Handle: RePEc:kuk:journl:v:52:y:2019:i:4:p:477-504