Seminar Papers,
Stockholm University, Institute for International Economic Studies

Abstract: By driving a wedge between the marginal returns to real and financial capital, inflation distorts production. The elimination of this distortion increases both the level and rate of growth of output. First, increased price stability improves the utilization of capital and thus increases the full-employment level of output in the long run, even though output decreases initially. Second, the static output gain from stabilization is captured in a simple formula in which the gain is approximately proportional to the square of the original inflation distortion. Third, successful stabilization increases the rate of growth of output per head, and not only its level, in the presence of constant returns to capital in a broad sense. Fourth, substitution of plausible parameter estimates into the simple formulae reflecting the gains from stabilization indicate that the static and dynamic output gains can be substantial.

Keywords: inflation distorted production

JEL-codes: E23; E31; P21

23 pages, October 31, 1997

Full text files

FULLTEXT01  

Download statistics

• Stockholm University, Institute for International Economic Studies
• Ordering Working Papers
• Home page for this series

Questions (including download problems) about the papers in this series should be directed to Hanna Christiansson ()
Report other problems with accessing this service to Sune Karlsson ().

RePEc:hhs:iiessp:0606This page generated on 2024-09-13 22:15:25.