stagflation

Examples of stagflation in the following topics:

• Shifting the Phillips Curve with a Supply Shock

  • Stagflation caused by a aggregate supply shock.
  • Stagflation is a combination of the words "stagnant" and "inflation," which are the characteristics of an economy experiencing stagflation: stagnating economic growth and high unemployment with simultaneously high inflation.
  • The stagflation of the 1970's was caused by a series of aggregate supply shocks.
  • The resulting decrease in output and increase in inflation can cause the situation known as stagflation.

• The Taylor Rule

  • For example, in times of stagflation, inflation may be high while unemployment is also high.

• Arguments For and Against Discretionary Monetary Policy

  • However, following the stagflation of the 1970s, policymakers were attracted to policy rules.

• The Short-Run Phillips Curve

  • However, the stagflation of the 1970's shattered any illusions that the Phillips curve was a stable and predictable policy tool.

• Alternative Views

  • Neo-Keynesian economics is often confused with 'New Keynesian' economics (which attempts to provide microeconomic foundation to Keynesian views, particularly in light of stagflation in the 1970s).
  • Stagflation (economic stagnation and inflation simultaneously) created issues with this however, necessitating New Keynesian ideas (as discussed briefly above).

• Impacts of Policies and Events on Equilibrium

  • A negative supply shock can cause stagflation due to a combination of raising prices and falling output .
  • This supply shock in turn contributed to stagflation and persistent economic disarray.

• The Phillips Curve

  • For many years, both the rate of inflation and the rate of unemployment were higher than the Phillips curve would have predicted, a phenomenon known as "stagflation. " Ultimately, the Phillips curve was proved to be unstable, and therefore, not usable for policy purposes .

• Volcker Disinflation

  • During his time as chairman, Paul Volcker led the Federal Reserve board and helped to end the stagflation crisis of the 1970s.

• The Long-Run Phillips Curve

  • The NAIRU theory was used to explain the stagflation phenomenon of the 1970's, when the classic Phillips curve could not.

• Years of Change: The 1960s and 1970s

  • The term "stagflation" -- an economic condition of both continuing inflation and stagnant business activity, together with an increasing unemployment rate -- described the new economic malaise.