Increase In Inflation Rate Research Articles

The Productivity Slowdown, The Oil Shocks, and the Real Cycle

Five facts stand out about economic performance in the United States since World War II. The first is that, for most of the postwar period, the U.S. has had a slower rate of economic growth than the other major developed democracies except Great Britain, and much lower rates of growth than Germany, Japan, and Italy. The second is that the United States has fallen far behind in many mass production industries in which it used to lead the world, whereas it is ahead of other nations in many new and especially high-technology industries. The third is that most of the older heartland of American industry -- roughly the area north and east of an arc drawn from Baltimore to St. Louis to Milwaukee -- has declined dramatically in comparison with the South and the West. The fourth is the near cessation of the growth of productivity since the early 1970s in the United States as well as in other developed countries. The fifth is the shift from the unexpectedly good macroeconomic performance of the 1950s and 1960s to the simultaneous and theoretically anomalous increases in unemployment and inflation rates in the 1970s. This article attempts to show, with distinctive quantitative estimates, that the familiar attempts to trace the productivity slowdown to higher energy prices cannot be right, but that the oil shocks had a significant indirect impact on the productivity slowdown. I argue that this roundabout impact becomes evident only when we introduce a fresh perspective on macroeconomics that also helps to explain the anomalous emergence of stagflation in the 1970s. Auspiciously, all five prominent facts are explained within the same parsimonious framework.

The New Keynesian Economics and the Output-Inflation Trade-Off

The purpose of this paper is to provide evidence supporting Keynesian theories. We point out a simple prediction of Keynesian models that contradicts other leading macroeconomic theories and show that it holds in actual economies. In doing so, we point out a new phenomenon that Keynesian theories render comprehensible. The prediction we that we test concerns the effects of steady inflation. In Keynesian models, nominal shocks have real effects because nominal prices change infrequently. An increase in the average rate of inflation causes firms to adjust prices more frequently to keep up with the rising price level. In turn, more frequent price changes imply that prices adjust more quickly to nominal shocks, and thus that the shocks have smaller real effects. We test this prediction by examining the relation between average inflation and the size of the real effects of nominal shocks both across countries and over time. We measure the effects of nominal shocks by the slope of the short-run Phillips curve.

A note on the demand for labor by firms and the Phillips curve phenomenon

This paper derives microeconomic implications of an increase in inflation uncertainty for a firm's demand for capital and labor resources. The concern for this topic is motivated by an interest in the effect of inflation uncertainty on the demand for labor and especially the Phillips curve. The basic idea is that an increase in the actual inflation rate increases inflation uncertainty with respect to the rental price of capital relative to that of labor, which in turn increases the demand for labor, both absolutely and relative to the capital stock. The result is a decline in unemployment.

Desalting - prospects for improvement in technology and reduction in costs

Desalting can already be considered as a reliable means of water production or water quality improvement. At the beginning of this decade, more than 2000 land-based desalting units having a combined capacity of more than 7 million cubic meters per day were operating or under construction. Many of these plants were reported to be operating reliably, demonstrating high plant availability factors. However, in most cases, the desalted water costs are still to high, especially for use in agriculture. In the past decade, desalting cost (in prevailing prices) increased, in some cases very drastically, despite improvement in technology. The main reasons for this were, obviously, the steep increase in energy costs and high rate of overall price inflation. In some cases, however, the cost of desalting was not increased in real prices, especially when using processes having relatively low specific energy consumptions. Desalting of brackish water even decreased in real prices due to impressive improvement in membrane processes, mainly reverse osmosis. For seawater desalting, recent developments and especially those now under development related to reverse osmosis membranes and efficient power recovery systems, are expected to reduce significantly the specific investment and overall operating costs. In the field of distillation, one of the more promising desalting options is that of low temperature multieffect distillation (MED) plants coupled to coal or nuclear power plants. A large prototype MED, using cheap alluminum tubing, has been recently built by Israel Desalination Engineering and is scheduled to start operation in the latter part of 1982. Various potential improvements of the MED process and optimized matching of system parameters with considered power plants will be analyzed. The two above discussed desalting options will be evaluated economically by assuming a common set of economic groundrules. The evaluation will be made for two stages of technological developments; current technology and projected technology. Recently made cost evaluations for large capacity plants, applying the two above-mentioned desalting options indicate specific investments in the range oa about $2/m 3 -year and unit water costs in the range of 60 to 70 cents/m 3, for current or near term technology and in the range of 40 to 60 cents/m 3 for projected technology. The two more important cost factors affecting competitiveness of these two options are unit energy and membrane replacement cost. A detailed analysis of these, as well as other cost factors, along with a breakdown of the cost effectiveness of the various projected technological improvements will be given and analyzed.

INFLATION AND GOVERNMENT DEFICITS

There is a pronounced positive correlation of inflation andgovernment deficits in the United States since World War II.The purpose of this paper is to test the three leading explanationsof this correlation. These three explanations are: (a) a deficitincreases prices through a wealth effect; (b) a deficit results inthe Federal Reserve purchasing debt, thus increasing the moneysupply and prices; and (c) expected inflation increases the deficit(which is the change in the nominal value of bonds). No supportis found for either of the first two hypotheses. The results indi-cate that expected government deficits have no significance forfuture inflation.Since World War II, the United States has experienced large federal-government deficits and a sustained peacetime inflation. Three differentconnections between the deficits and inflation are prominent in theliterature.The most direct connection between government deficits and inflationis that by increasing the real value of outstanding bonds and perceived netwealth, a deficit can raise total spending and the price level. This connec-tion is also the most long-standing and is suggested by Metzler (1951) andPatinkin (1965) for example.Monetarists generally and Buchanan and Wagner (1977) in particularhave emphasized a different link between deficits and inflation. They sug-gest that the Federal Reserve purchases government bonds when the Trea-sury sells bonds, thus increasing high-powered money, the money supply,and the price level. The Federal Reserve might behave this way, for exam-ple, because it is attempting to hold down interest rates on governmentsecurities when deficits occur.Recently, Barro (1978, 1979) has put forward a hypothesis that deficitsare a result of inflation, rather than inflation being a result of deficits. Thegovernment deficit is the change in the nominal value of outstanding gov-ernment bonds. If the anticipated inflation rate increases, then the nomi-nal value of bonds must increase, i.e., the government will run a deficit, tokeep the same anticipated real amount of bonds.All three of these possible connections between government deficitsand inflation are consistent with the observed positive correlation of defi-cits and inflation. The implications, however, are strikingly different con-

Treatment of inflation in engineering economic analysis

Recent increases in inflation rates make it essential that inflation be properly treated in engineering economic analysis. This paper develops a systematic and internally consistent approach to the treatment of inflation in such analyses. The problems of inconsistent treatment of inflation are discussed and several examples are given.