Department of Economics
Stanford, CA 94305
NBER Working Papers and Publications
|August 1979||A Strategic Theory of Inflation|
A strategic mechanism of price adjustment is introduced to explain inflations in the U.S. during 1909-1974. The mechanism follows from our theory that when the profit rate is above a normal-target rate, competitive forces operate to lower prices while if the profit rate is below the target a correlated strategy among firms operates to generate a rise in prices as a strategy to improve profitability. The notion of "correlated strategy" is adopted from game theory. The mechanism may operate in harmony or against demand and the net effect is what we call the "basic inflation." Contrary to a-priori notions of positive association between inflation rates and profit rates, our theory proposes a critical test of a negative association between these variables. Such a relationship is in fact empiri...
|1967||Investment, Dividend, and External Finance Behavior of Firms|
with Phoebus J. Dhrymes
in Determinants of Investment Behavior, Robert Ferber, editor