Relative-price changes as aggregate supply shocks by Laurence Ball

Cover of: Relative-price changes as aggregate supply shocks | Laurence Ball

Published by Federal Reserve Bank of Philadelphia, Economic Research Division in Philadelphia .

Written in English

Read online

Edition Notes

Book details

StatementLaurence Ball, N. Gregory Mankiw.
SeriesEconomic research working paper series / Federal Reserve Bank of Philadelphia, Economic Research Division -- no.13, Economic research workingpaper (Federal Reserve Bank of Philadelphia, Economic Research Division) -- no.13.
ContributionsMankiw, N. Gregory.
ID Numbers
Open LibraryOL13975282M

Download Relative-price changes as aggregate supply shocks

Relative-Price Changes as Aggregate Supply Shocks Laurence Ball, N. Gregory Mankiw. NBER Working Paper No. (Also Reprint No. r) Issued in September NBER Program(s):Economic Fluctuations and Growth Program, Monetary Economics Program This paper proposes a theory of supply shocks, or shifts in the short-run Phillips curve, based on relative-price changes and frictions in.

Downloadable (with restrictions). This paper proposes a theory of supply shocks, or shifts in the short-run Phillips curve, based on relative-price changes and frictions in nominal price adjustment. When price adjustment is costly, firms adjust to large shocks but not to small shocks, and so large shocks have disproportionate effects on the price level.

"Relative-Price Relative-price changes as aggregate supply shocks book as Aggregate Supply Shocks," The Quarterly Journal of Economics, Oxford University Press, vol.

(1), pages Laurence Ball & N. Gregory Mankiw, " Relative-price changes as aggregate supply shocks," Working Papers 93 Cited by: Get this from a library.

Relative-price changes as aggregate supply shocks. [Laurence M Ball; N Gregory Mankiw; National Bureau of Economic Research.]. RELATIVE-PRICE CHANGES AS AGGREGATE SUPPLY SHOCKS* LAURENCE BALLAND N. GREGORY MANKIW This paper proposes a theory of supply shocks, or shifts in the short-run Phillips curve, based on relative-price changes and frictions in nominal price adjustment.

When price adjustment is costly, firms adjust to large shocks but not to. Relative-price changes as aggregate supply shocks. Cambridge, MA: National Bureau of Economic Research, [] (OCoLC) Material Type: Document, Internet resource: Document Type: Internet Resource, Computer File: All Authors / Contributors: Laurence M Ball; National Bureau of Economic Research.

relative price changes are considered as aggregate supply shocks. They argue that the existence of such relati onships is ‘a novel empirical prediction’ of a menu costs model 6. RELATIVE-PRICE CHANGES AS AGGREGATE SUPPLY SHOCKS ABSTRACT This paper proposes a theory of supply shocks, or shifts in the short-run Phillips curve, based on relative-price changes and frictions in nominal price adjustment.

When price adjustment is costly, firms adjust to large shocks but not to small shocks, and so large shocks have. relative price changes as supply shocks.

Ball and Mankiw () exploit the positive relationship between inflation and relative price dispersion/skewness to propose a theory of aggregate inflation, in which relative price changes are considered as aggregate supply shocks.

They argue that theCited by: 1. Thus, the relative price changes had the essential traits of an aggregate supply shock. Economists, however, came up with various different stories to interpret relative price changes as supply shocks. Ball and Mankiw () exploit the positive relationship between inflation and.

Relative-price shocks can have an important impact on the public’s inflation expectations even though they are distinct from inflation. Consumers confront individual prices, not price indexes, on a day-to-day basis, and they might interpret big changes in specific prices, like gasoline or food items, as signals of emerging by: 2.

Balke and Wynne () argue that sectoral technology shocks can lead to relative price changes and aggregate inflation. Fischer () gives a good summary of all three possibilities discussed in. Problem: Explain the chain of events that causes the aggregate demand curve to be upward sloping according to the imperfect- information model.

The chain of events that leads from an increase in the price level to an increase in output in the imperfect-information model: when the overall price level rises, producers mistake it for a relative increase in the price level.

UNCERTAINTY SHOCKS ARE AGGREGATE DEMAND SHOCKS 3 that uncertainty shocks continue to be an important factor explaining the sharp increase in unemployment in the Great Recession and recovery.

Interestingly, uncertainty shocks did not always play an important role during previous recessions and recoveries. ECONEdinboro University, Dr. Shuang Feng. Book: Macroeconomics Today, Schiller, CH Learn with flashcards, games, and more — for free. The first method lets the model run in the standard way, and the emerging AD curve is the one that joins the points drawn with circles in Fig.

It is evident that the curve is constrained by the overall supply of goods (equal to the actual production, units, plus the past inventories, 38 units, for an overall amount of ): for lower prices, consumers would buy a larger amount of goods.

“ Credit and Economics Activity: Credit Regimes and Nonlinear Propagation of Shocks, ” Review of Economics and Statistics, May" An Equilibrium Analysis of Relative Price Changes and Aggregate Inflation," (with M.

Wynne), Journal of Monetary Economics, 45(2), Aprilrates.6 Aggregate inflation and output respond to changes in the relative price between the two sectors when nominal rigidity differs across them, but also when nominal rigidity is the same and the central bank responds to sectoral inflation rates Size: KB.

Shocks to aggregate supply and aggregate demand in terms of percentage changes rather than levels of output and/or prices. By recasting the model in terms of rates of change, the economy may 3 The aggregate dollar price level reflects (inversely) the relative price of the dollar.

The PCGE. First, nominal rigidities help amplify the effect of uncertainty shocks on the unemployment rate through declines in aggregate demand, as in the standard DSGE model without search frictions (Fernández-Villaverde et al.,Basu and Bundick, ). In our model with search frictions, the decline in aggregate demand reduces the value of a new Cited by: Propagation of Cyclical Shocks, Los Angeles, October "An Equilibrium Analysis of Relative Price Changes and Aggregate Inflation," Western Economic Association Meetings, San Francisco, June "An Equilibrium Analysis of Relative Price Changes and File Size: 45KB.

Ball, Laurence, and N. Gregory Mankiw (). "Relative-Price Changes as Aggregate Supply Shocks," Quarterly Journal of Economics, vol. (February), pp. Bernanke, Ben S. "Outstanding Issues in the Analysis of Inflation," speech delivered at the Federal Reserve Bank of Boston's 52nd Annual Economic Conference, Chatham, Mass.

a policy that yields to the effect of a shock and thereby prevents the shock from being disruptive; for example, a policy that raises aggregate demand in response to an adverse supply shock, sustaining the effect of the shock on prices and keeping out put at its natural level.

Aggregate demand shocks include shocks to I consumption demand by households I from ECON at University of Southern California. and later authors show that countries with highly variable aggregate demand have steep Phillips curves. That is, nominal shocks in these countries have little effect on output.

Lucas interprets this finding as evidence that highly variable demand reduces the perceived relative price changes resulting from nominal shocks.

We provide a KeynesianFile Size: 1MB. Uncertainty Shocks and the Relative Price of Investment Goods Munechika Katayama Kyoto University [email protected] Kwang Hwan Kim Yonsei University [email protected] October 6, In Progress, Very Preliminary Abstract This paper investigates the role of uncertainty shocks in a two-sector, representative-agent sticky price model.

These stylized facts--that inflation has become less persistent and now responds less to aggregate demand and supply shocks--can lead to inappropriate policy advice.

If we take these facts to be structural and attributable to factors other than monetary policy, we might interpret them as suggesting that the Federal Reserve could respond less to. monetary shocks would manifest themselves in relative price changes.

Second, examining the response of relative prices to monetary shocks may shed some light on alternative theories of monetary neutrality. For example, there is a literature that has documented the positive correlation between the mean of the cross-section distribution of price.

A likely example of substitute goods for most people would be a. tables and chairs. bicycles and helmets. apple juice and orange juice.

coffee and sugar. Answer: U.S. GDP includes the market value of rental housing, but not the market value of owner-occupied housing services. True b. False Answer: Figure [ ]. But oil price shocks can also occur when the demand for oil rises or falls relative to the supply.1 Indeed, the price of imported oil plummeted to below $10 a barrel in late because of a marked slowing in the growth of world oil consumption—reflecting, importantly, the significant declines in economic activity in South-east Asia.

Even Author: Kevin L. Kliesen. (b) changes in the money supply are an important cause of shifts in the AD, (3) shifts arising from government purchases, and (4) shifts arising from net exports.

(5) And we will also see that changes in the money supply will shift the AD curve. (6) Table 1: The Aggregate Demand Curve: Summary. The Aggregate Supply Curve a.

4 Brookings Papers on Economic Activity, average inflation from 10 percent to 5 percent substantially alters the short-run impact of aggregate demand. The Lucas aggregate supply function or Lucas "surprise" supply function, based on the Lucas imperfect information model, is a representation of aggregate supply based on the work of new classical economist Robert model states that economic output is a function of money or price "surprise".

The model accounts for the empirically based trade off between output and prices represented by. ECOWAS sub-region typifies evidence of primary export as the main source of foreign exchange to member countries, thereby making them susceptible to commodity price shocks.

This paper examines the effect of commodity price shocks on ECOWAS member countries using a panel data of 13 member countries for the period –Author: Moses K. Tule, Udoma J. Afangideh, Adegoke I. Adeleke, Augustine Ujunwa. Posted 10/25/ This article is based on the Homer Jones Memorial Lecture delivered at the Federal Reserve Bank of St.

Louis, Abstract: Understanding and forecasting inflation has always been a key focus of macroeconomics and monetary policymaking.

Historically, many macroeconomists and central banks have relied on the "Phillips curve" framework for this purpose. The author essential refutes the absolutism of Monetarist theory on inflation, supports Malthusian dynamics of population and resource limits, confirms the Keynesian position on aggregate demand and aggregate supply forces, and proves the Minskian position on irrational expectations due to the limited historical basis in human perceptions/5(34).

The aggregate demand is the level of consumption that satisfies equation (2) when m = properties of the aggregate demand reflect the household’s indifference between consumption and holding μ p real money balances.

First, a higher p leads to lower real money balances. Households’ indifference between consumption and holding money implies that they desire lower consumption Cited by: the aggregate demand/aggregate supply model.

Although oil-price shocks are the most commonly cited examples of aggregate supply shocks, they violate the model's assumption of constant relative prices (as acknowledged by the label, "oil-price shocks"). The resulting problems are effectively masked in textbook presentations by implicitly assuming.

57 CHAPTER SUMMARY Anything that changes C, I, G, or NX – except a change in the price level – will shift the aggregate demand curve.

The long-run aggregate supply curve is vertical, because changes in the price level do not affect output in the long run.

In the long run, output is determined by labor, capital, natural resources, and. "Relative-Price Changes as Aggregate Supply Shocks." Q.J.E. (February ): Barro, Robert J. "Rational Expectations and the Role of Monetary Policy.".

THE QUARTERLY JOURNAL OF ECONOMICS Vol. May Issue 2 AGGREGATE DEMAND, IDLE TIME, AND relative price that reduces the attractiveness of consumption rel- sponds neither to aggregate demand shocks nor to aggregate supply shocks, exactly as .Changes in aggregate demand are represented by shifts of the aggregate demand curve.

An illustration of the two ways in which the aggregate demand curve can shift is provided in Figure. A shift to the right of the aggregate demand curve. from AD 1 to AD 2, means that at the same price levels the quantity demanded of real GDP has increased.Thus, modern macroeconomics describes inflation using a Phillips curve that is able to shift due to such matters as supply shocks and structural inflation.

The former refers to such events like the oil crisis, while the latter refers to the price/wage spiral and inflationary expectations implying that inflation is .

73811 views Wednesday, November 25, 2020