Inflation: a Review of the Issues

This paper seeks to provide a basis for a constructive discussion and work on the major outstanding and unsettled questions concerning the causes, consequences and appropriate policies for dealing with inflation. At a time when the world continues to experience relatively high and variable inflation rates and the various ‘schools’ in the economics profession continue to hold such sharply conflicting and strongly held views, the most pressing need appears to be to attempt to reach a greater measure of professional agreement not so much on answers but on questions and on procedures for answering these questions. Our objective is to help achieve such a clarification of the questions. One ingredient in the pursuit of this objective would be a detailed and comprehensive survey of the existing body of literature on these problems. We do not provide that here, but, for a survey, refer the reader to Laidler and Parkin [29] and Gordon [16]. Rather, we try to provide an agenda for discussion by attempting to identify those aspects of the inflation problem which are settled and on which there is a widely accepted body of literature and those aspects which are in an unsettled state and require further work. Since there are so many unsettled problems a selection process is inevitable and it has been necessary to focus on those aspects of the problem which seemed to us to be the most important ones. To a large extent therefore, the content of this paper reflects our own prejudices as to what is and is not important.