The Impact of Demand and Cost Factors on Inflation in Open Economies

UNCG Author/Contributor (non-UNCG co-authors, if there are any, appear on document)
Stuart D. Allen, Professor (Creator)
Donald L. McCrickard, Associate professor and Associate Dean (Creator)
The University of North Carolina at Greensboro (UNCG )
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Abstract: Bruno [1] develops a theoretical model of the wage-price adjustment process in an open economy to consider the dynamic impact of changes in import prices and exchange rates. In his model nominal wages are a function of the excess demand for labor, import prices (Pm) and an adaptive expectation term which is measured by a lag of the consumer price index (P C-l). The consumer price index (Pc) is a function of these three variables and the excess de-mand for home goods. Bruno finds that most of the variation of inflation rates for 16 OECD countries for 1972-76 is explained by the initial cost-push effect of the growth of import prices and the expectation of domestic inflation. This conclusion is based upon the empirical results obtained from estimating the pooled 64 cross-section and time series observations of a naive version of his model shown in equation (1).

Additional Information

Southern Economic Journal
Language: English
Date: 1981
Economics, Open Economics, Demand and Cost Factors

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