Nominal Income and the Inflation-Growth Divide

BySheetal K. Chand

November 1, 1997

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper deals with aggregate demand fluctuations and their price and output effects. Starting with a nominal income solution, a rule for determining the inflation and output growth effects is presented. Assigning alternative values to the key parameters of the suggested rule generates different closure rules, such as the classical and the Keynesian and their modern counterparts. An application to major industrial country data indicates that the suggested rule is robust. Both inflation and output growth are affected by nominal shocks, but response patterns vary among the countries.

Subject: Inflation, Labor, National accounts, Personal income, Potential output, Prices, Production, Production growth, Wages

Keywords: cross-equation restriction, G-7 countries, growth equation, growth rate, growth solution, income growth, inflation, inflation effect, inflation rate, macroeconomic analysis, nominal income, output, Personal income, Phillips curve, Potential output, Production growth, rate of inflation, Wages, WP

Pages:
32
Volume:
1997
DOI:
https://doi.org/10.5089/9781451856699.001
Issue:
147
Series:
Working Paper No. 1997/147
Stock No:
WPIEA1471997
ISBN:
9781451856699
ISSN:
1018-5941

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