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A Consistent Characterization of a Near-Century of Price Behavior

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  • Robert J. Gordon

Abstract

This paper demonstrates that the commonly used Expectational Phillips Curve (EPC) framework cannot explain the last eighty-seven years of aggregate price behavior in the United States. The EPC explanation, which in its most general form relates price change to expected inflation and the level of detrended output, obscures the fact that price change has been much more closely related to the contemporaneous rate of change of detrended output. Over the near-century of annual data studied here, a change in output has shown a remarkably consistent tendency to be associated in annual data with a simultaneous change in the price level of about one-half as much. Stated another way, nominal GNP changes have been divided consistently, with two-thirds taking the form of output change and the remaining one-third the form of price change. This finding applies not only over the entire 1890-1978sample period, but also over three subperiods (1890-1929, 1929-53, and 1953-78).

Suggested Citation

  • Robert J. Gordon, 1980. "A Consistent Characterization of a Near-Century of Price Behavior," NBER Working Papers 0455, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:0455
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    1. Sargent, Thomas J, 1971. "A Note on the 'Accelerationist' Controversy," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 3(3), pages 721-725, August.
    2. Klein, Benjamin, 1976. "The social costs of the recent inflation: The mirage of steady "anticipated" inflation," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 3(1), pages 185-212, January.
    3. Feige, Edgar L & Pearce, Douglas K, 1976. "Economically Rational Expectations: Are Innovations in the Rate of Inflation Independent of Innovations in Measures of Monetary and Fiscal Policy?," Journal of Political Economy, University of Chicago Press, vol. 84(3), pages 499-522, June.
    4. Brunner, Karl & Meltzer, Allan H., 1976. "Institutional arrangements and the inflation problem," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 3(1), pages 1-13, January.
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    Cited by:

    1. Rotemberg, Julio J., 1996. "Prices, output, and hours: An empirical analysis based on a sticky price model," Journal of Monetary Economics, Elsevier, vol. 37(3), pages 505-533, June.
    2. Nelson, Edward, 2001. "What Does the UK's Monetary Policy and Inflation Experience Tell Us About the Transmission Mechanism?," CEPR Discussion Papers 3047, C.E.P.R. Discussion Papers.
    3. John M. Roberts, 2006. "Monetary Policy and Inflation Dynamics," International Journal of Central Banking, International Journal of Central Banking, vol. 2(3), September.
    4. Charles W. Calomiris, 1992. "Greenback Resumption and Silver Risk: The Economics and Politics of Monetary Regime Change in the United States, 1862-1900," NBER Working Papers 4166, National Bureau of Economic Research, Inc.
    5. Laurence Ball, 2000. "Near-rationality and inflation in two monetary regimes," Proceedings, Federal Reserve Bank of San Francisco.
    6. Daniel Kaufmann, 2016. "Is Deflation Costly After All? Evidence from Noisy Historical Data," KOF Working papers 16-421, KOF Swiss Economic Institute, ETH Zurich.
    7. Benjamin O. Fordham, 2003. "The Political and Economic Sources of Inflation in the American Military Budget," Journal of Conflict Resolution, Peace Science Society (International), vol. 47(5), pages 574-593, October.
    8. Adrian W. Throop, 1988. "An evaluation of alternative measures of expected inflation," Economic Review, Federal Reserve Bank of San Francisco, issue Sum, pages 27-43.
    9. John A. James, 1985. "Shifts in the Nineteenth-Century Phillips Curve Relationship," NBER Working Papers 1587, National Bureau of Economic Research, Inc.
    10. Robert J. Barro, 1986. "The Behavior of United States Deficits," NBER Chapters, in: The American Business Cycle: Continuity and Change, pages 361-394, National Bureau of Economic Research, Inc.
    11. J. Bradford DeLong & Lawrence H. Summers, 1986. "The Changing Cyclical Variability of Economic Activity in the United States," NBER Chapters, in: The American Business Cycle: Continuity and Change, pages 679-734, National Bureau of Economic Research, Inc.
    12. John Hassler & Petter Lundvik & Torsten Persson & Paul Soderlind, 1992. "The Swedish business cycle: stylized facts over 130 years," Discussion Paper / Institute for Empirical Macroeconomics 63, Federal Reserve Bank of Minneapolis.
    13. M. Ishaq Nadiri, 1986. "Price Inertia and Inflation: Evidence and Theoretical Rationale," NBER Working Papers 2022, National Bureau of Economic Research, Inc.
    14. Allen Sinai, 1985. "The Dollar and Inflation," Eastern Economic Journal, Eastern Economic Association, vol. 11(3), pages 211-220, Jul-Sep.
    15. Christina D. Romer, 1993. "The Nation in Depression," Journal of Economic Perspectives, American Economic Association, vol. 7(2), pages 19-39, Spring.
    16. Nathan S. Balke & Robert J. Gordon, 1988. "The Estimation of Prewar GNP: Methodology and New Evidence," NBER Working Papers 2674, National Bureau of Economic Research, Inc.

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