Output Gains from Economic Stabilization

Thorvaldur Gylfason

Working Papers from Stockholm - International Economic Studies

Abstract: By driving a wedge between the marginal returns to real and financial capital, inflation distorts production. The elimination of this distorsion increases both the level and the rate of growth of output. First, increased price stability improves the utilization of capital and thus increases the full-employment level of output in the long run, even though output decreases initially. Second, the static output gain from stabilization is captured in a simple formula in which the gain is approximately proportional to the square of the original inflation distorsion.

Keywords: PRICES; PRODUCTION; INFLATION (search for similar items in EconPapers)
JEL-codes: E23 E31 P20 (search for similar items in EconPapers)
Pages: 22 pages
Date: 1996
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Related works:
Journal Article: Output gains from economic stabilization (1998)
Working Paper: Output Gain From Economic Stabilization (1997)
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Persistent link: https://EconPapers.repec.org/RePEc:fth:stocin:606

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