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Price Expectations and Actual Price Behavior in Germany
The hypothesis that price expectations exercise at least a partially independent influence on actual price behavior is empirically tested. The method used, which differs from earlier analyses, quantifies data from qualitative price surveys to derive an explicit time series of price expectations. In brief, the analysis shows that there is empirical evidence that price expectations influence the actual rate of inflation and that price expectations depend to a large degree on past experience, on past rates of inflation, and demand pressures. The analysis suggests, therefore, that the actual rate of inflation at any point in time depends on three principal factors: (1) cost pressures, (2) demand pressures, (3) the rate of inflation experienced in the recent past through its effect on formation of current price expectations. These conclusions, if valid, have important policy implications. In a situation of accelerating inflation it may be very difficult to moderate the pace of inflation by means of demand management policies applied in conventional degree. It is unlikely to be sufficient for such policies to bring pressures on capacity down to some medium-term norm, because the analysis suggests that it is necessary not only to eliminate excess demand pressure but also to take action to offset the inflationary pressure built up as a result of recorded past price performance. In other words, demand management policy must be sufficient inter alia to break rising price expectations. This approach implies that a "break" in such expectations can be achieved by demand management policies only at the cost of an unusually high degree of restrictiveness and associated cost in unemployment. However, the analysis suggests that, when price expectations have been broken by such policies and the contemporary rate of inflation is thus acceptably moderate, it would be possible for unemployment to return to its earlier lower level and for demand management policies to be restored to the earlier single role of avoidance of excess demand pressure. Thus, very tight demand management policies in the short term may be a means of improving the unemployment-inflation trade-off in the medium term. It is pointed out, however, that an alternative approach for breaking built-up price expectations would be the implementation of prices and incomes policies, possibly involving a wage-price freeze. Arguably, such an approach could mitigate the degree of severity of the restrictive demand management policies that would be required if inflationary expectations were to be broken by such measures alone, while it may offer a broadly similar prospect for an improvement in the unemployment-inflation trade-off in the medium term.
Ketersediaan
| Call Number | Location | Available |
|---|---|---|
| SP2101 | PSB lt.dasar - Pascasarjana | 1 |
| Penerbit | Washington, D.C.: International monetary fund 1974 |
|---|---|
| Edisi | Vol. 21, No. 1, Mar., 1974 |
| Subjek | Economic policies price expectations Actual price behavior Medium term |
| ISBN/ISSN | 0020-8027 |
| Klasifikasi | NONE |
| Deskripsi Fisik | 18 p. |
| Info Detail Spesifik | Staff Papers (International Monetary Fund) |
| Other Version/Related | Tidak tersedia versi lain |
| Lampiran Berkas |