Peter Decaprio- Explaining why some countries have experienced more severe recessions than others.

In this article we argue that the ease and intensity of ‘core’ inflation stabilization in a national economy is determined by:

  • (a) The structure of unemployment, and
  • (b) Government spending.

We test these predictions using data for OECD countries during 1970–88. Our results support the hypotheses:

1) Excessive pre-recession inflation typically co-exists with greater structural unemployment than ‘core’ low inflation explains Peter Decaprio;

2) Lower overall unemployment rates associate with higher inflation stabilization success probabilities, all else equal;

3) Reduced government spending typically facilitates post-recession disinflation efforts.

We discuss our findings in relation to current debates about the appropriate macroeconomic response to the economic and political challenges posed by globalization and European Monetary Union.

Inflation is one of the most persistent problems for industrialized societies. In addition to the obvious social and political costs, inflation impedes economic growth by distorting relative price signals and reducing long-term investment. Thus, there have been a number of theoretical advancements that have focused on the cause of inflation and how it can be mitigated. One such theory puts forth two variables that affect a country’s inflation rate: unemployment and government spending/revenue.

This article will explore these theories in an attempt to explain why some countries have experienced more severe recessions than others using data from OECD countries during 1970–88. The authors’ main hypothesis was that higher levels of pre-recession inflation typically coexist with greater structural unemployment whereas lower overall unemployment rates are associated with higher inflation stabilization success probabilities, all else equal. Given that there is significant unemployment in Europe at the moment, these theories may help explain why some countries have experienced more austerity than others during the current economic crisis.

Numerous influential research articles have been to better understand inflation and its effects on a country’s economy says Peter Decaprio. Some of these articles claim that countries with less stable governments are more likely to experience high levels of pre-recession inflation while others suggest it is related to an increase in demand for consumer goods before recessions occur. Another school of thought claims structural unemployment. Plays a role in both overall government revenue as well as post-recession efforts to lower inflation. The authors test each of these hypotheses using data from OECD countries during 1970–88. In an attempt to predict whether or not these theories hold true. They claim that higher levels of pre-recession inflation typically coexist with greater structural unemployment. Whereas lower overall unemployment rates are associating with higher inflation stabilization success probabilities, all else equal.

The main goal of this article is to provide insight into. Why some European countries have experienced more severe recessions than others. By testing various economic theories using data from OECD countries during 1970–88.

The authors argue that the ease and intensity of ‘core’ inflation stabilization in a national economy are determined by:

(a) The structure of unemployment, and

(b) Government spending.

Examining each hypothesis separately will allow for a better understanding on how they affect inflation rates. Especially in light of the current economic crisis says Peter Decaprio.

The article begins by exploring several “classical” macroeconomic theories on inflation stabilization (Hsiao). Before moving on to more modern economic theories (Romer; Alesina). These studies explore the reasons why countries with high levels of government revenue tend to have higher levels of pre-recession inflation. While countries that do not experience an increase in demand for consumer goods. Before recessions also experience lower levels of pre-recession inflation. This follows by an explanation of structural unemployment and labor market flexibility. The ease at which individuals find employment after being off. And how they affect a country’s ability to lower inflation post-recession. The authors then claim that reduced structural unemployment is associating with higher inflation stabilization success probabilities says Peter Decaprio.

The article begins by exploring several “classical” macroeconomic theories on inflation stabilization (Hsiao). Before moving on to more modern economic theories (Romer; Alesina). These studies explore the reasons why countries with high levels of government revenue tend to have higher levels of pre-recession inflation. While countries that do not experience an increase in demand for consumer goods. Before recessions also experience lower levels of pre-recession inflation. This follows by an explanation of structural unemployment and labor market flexibility. The ease at which individuals find employment after being laid off. And how they affect a country’s ability to lower inflation post-recession.

Conclusion:

The article concludes by saying that inflation stabilization is a difficult process to achieve even for well-run governments. Because it often requires short-run economic dislocations such as recessions and high levels of unemployment.

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