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 and Department Head (Creator)

Donald L. McCrickard, Associate professor and Associate Dean (Creator)

Institution

The University of North Carolina at Greensboro (UNCG )

Web Site: http://library.uncg.edu/

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).

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

Publication

Southern Economic Journal

Language: English

Date: 1981

Keywords

Economics, Open Economics, Demand and Cost Factors