Suchergebnisse

This paper analyses two reasons why inflation may interfere with price adjustment so as to create inefficiencies in resource allocation at low rates of inflation. The first argument is that the higher the rate of inflation the lower the likelihood that downward nominal rigidities are binding (the Tobin argument) which implies a non-linear Phillips-curve. The second argument is that low inflation strengthens nominal price rigidities and thus impairs the flexibility of the price system resulting in a less efficient resource allocation. It is argued that inflation can be too low from a welfare point of view due to the presence of nominal rigidities, but the quantitative importance is an open question. Klassifikation:

One of the most significant developments in the current
economic scene in Pakistan has been the sharp increase in the rate of
inflation. The annual average rate of increase in the wholesale price
index (WPI) during the first seven months (July-January 1994-95) of the
current fiscal year has been about 19 percent as opposed to 11.3 percent
during the same period last year. A similar increase was also witnessed
in the consumer price index (CPI) which accelerated to 13 percent as
opposed to 11.1 percent during the previous period. Such a sharp
increase in prices in recent months has not only caused alarm in the
academic circles but has equally disturbed the country's chief
executive, the Prime Minister. The recent surge of inflation is a matter
of serious concern for a variety of reasons. First, Pakistan has been a
low-inflation country as it has experienced price stability during the
last three decades. The rate of inflation, as measured by an increase in
the WPI, averaged 2.6 percent during the 1960s. The components of the
WPI, i.e., food, raw materials, manufactures, and fuel and lubricants,
also grew by an average rate ranging from 2.0 to 3.4 percent p.a. during
then 1960s (see Table 1 for relevant statistics). The rate of inflation
crossed the single-digit threshold during the 1970s. The WPI and its
components increased at an annual average rate ranging from 12 to 18
percent. The double-digit inflation during the 1970s has been the result
of two major oil shocks, a massive devaluation of currency, and
devastating floods destroying agricultural crops. Pakistan returned to
the fold of the single-digit inflation during the 1980s. The rate of
inflation remained at the single-digit level during the first three
years of the 1990s with the exception of 1990-91, when the rate of
inflation increased to 11.7 percent as a result of the Gulf War. It is
only during the outgoing fiscal year and in the current year that the
rising inflation is posing a major threat to macroeconomic
stability.