Supply vs. Demand Approaches to the Problem of Stagflation / Michael Bruno, Jeffrey Sachs.

Format:

Book

Author/Creator:

Bruno, Michael.

Contributor:

National Bureau of Economic Research.

Sachs, Jeffrey.

Series:

Working Paper Series (National Bureau of Economic Research) no. w0382.

NBER working paper series no. w0382

Language:

English

Subjects (All):

Economic history.

Natural resources.

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1979.

Cambridge, Massachusetts : National Bureau of Economic Research, 1979.

Summary:

We develop a model of aggregate supply and demand in the open economy to explain the important characteristics of international macroeconomic adjustment in the 1970s. Traditional demand-oriented models cannot account for the worldwide phenomenon of rising inflation and unemployment in the mid-70s, or for the failure of most industrialized economies to recover from the deep recession of 1974-75. When aggregate supply is carefully treated, it is found that much of the inflation and sluggish output performance may be attributed to the jump in the real costs of intermediate inputs and the failure of real wages to adjust downward after the input price shock. A simulation model shows that fuel inputs are sufficiently important in production that a large part of the worldwide recession may be attributed to the change in the relative price of oil, since 1973. In an empirical section, it is suggested that countries differ in their response to supply shocks and macro-policies because of differences in key structural relationships, particularly in wage determination.

Notes:

Print version record

August 1979.