This paper reviews the main issues that supply shocks pose for the conduct of monetary policy. A simple version of the Gordon-Phelps model shows that the necessary condition for actual real GNP to be maintained at its equilibrium level in the wake of a supply shock is for the change innominal...

This paper develops the view that monetary policy operates within a set of basic constraints that limit the set of outcomes that it can achieve.These include constraints on aggregate supply behavior that determine how a given path of nominal income growth will be divided between inflation and...

This paper reviews the main characteristics of cyclical behavior in the postwar U. S. economy and reviews the arguments for and against an activist stabilization policy to dampen business cycles. Four major behavioral characteristics are identified from summary data on U. S.postwar business...

This paper introduces a new approach to the empirical testing of the Lucas- Sargent-Wallace (LSW) "policy ineffectiveness proposition." Instead of testing that hypothesis in isolation from any plausible alternative, the paper develops a single empirical equation explaining price change that...

The most striking aspects of recent U.S. wage and price behavior are the small year-to-year variations in the rate of change of wages, the modest 1977-79 acceleration in the rate of change of both wages and the consumption deflator net of food and energy, and an unprecedented gap between the...

This paper presents a single reduced-form inflation equation that can explain both the variance and acceleration of inflation during the 1970s.Inflation is explained by four sets of factors. Aggregate demand enters through the lagged output ratio and the growth rate of nominal GNP. The...