Imported Inflation 1973-74 and the Accommodation Issue

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The purpose of the present study is to measure the amount of price increase that the proposals for accommodation required in 1973—74. Presumably such an estimate of the amount could be made in time to act on it. Whether accommodation is a desirable policy is not addressed here. Consistently followed, it would result in a higher long-run rate of inflation, because there are not likely to be nearly enough episodes of deflationary accommodation to offset the inflationary ones. Notwithstanding the appeal in the short run to accept inflationary fait accompli in order to avoid prolonged economic slack, one may have strong reservations about the long-run consequences on expectations of following such a policy.

Published: Cagan, Phillip. "Imported Inflation 1973-74 and the Accommodation Issue." Journal of Money, Credit, and Banking, Vol. XII, No. 1, (February 1980), pp. 1-16.

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