Macroeconomics (inflation) Essay Example | Topics and Well Written Essays - 1500 words

Macroeconomics (inflation) - Essay ExampleThe inference is not necessarily correct other explanations are equally logical and sufficiently important to be worth serious consideration. Many countries might experience inflation at the same metre without supranational contagion of inflationary forces because they respond in the same way to common causes (Wickens 54). All countries have undergone long-period institutional and structural changes which, although not in themselves inflationary, have do them more vulnerable to inflation. One of these changes is a widespread increase in the resistance to reductions of nominal prices and wages. Another is the growing role of the public sector in most national economies, a development that may increase the vulnerability to inflation in a number of different ways, which are discussed in the appurtenance to this paper. Another possible cause of a accrue in the dispersion of rates of change in consumer prices and other comprehensive price in dexes, such as gross national product deflators, is a crossing in the rates of productivity growth of different countries. These comprehensive price indexes tend to diverge from the synonymic national indexes of wholesale prices in degrees related to the growth in a countrys productivity. If changes in national wholesale prices continue to be tied together, a convergence of national rates of productivity growth would cause a convergence of changes in their consumer price indexes and GNP deflators (Wickens 51). Gali (2008) underlines that monetary changes may directly release inflationary forces. In the monetary field, the development and expansion of the Eurocurrency market, even if it has not greatly increased the supply of what one chooses to call money, has increased the supply of liquidity or reduced the demand for it. Similarly, the establishment of special drawing rights has provided a non-national addition to the multinational reserve assets of the recipient countries with out increasing the liabilities of other countries. Other explanations of a decrease in dispersion of inflation rates are also possible. For example, inflation rates may have been generated in many countries at the same time merely because cyclical expansion in a number of important countries coincided to an unusual degree (Gali 77). Although the probability that such similarity of movement in several(prenominal) large countries occurred by sheer coincidence may not be high, it is not so low as to be negligible such synchronicity has occurred at times in the past when the world economy is widely regarded as having been less integrated than it is now, and it occurred then to a greater extent than in some subsequent periods, as is indicated by the evidence cited in the appendix (Gali 72). As national inflation rates may converge without increased international transmission through market forces, so may such transmission increase without making inflation rates converge. Indeed, an incr ease in such transmission may even increase the dispersion of some measures of inflation. This may be more than a possibility with regard to dispersion of consumer price in