Inflation : Demand-Pull or Cost-Push? Optimization-Based, Three-Country Estimation

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[SUMMARY]This paper estimates inflationary procceses of the U.S.A., the U.K., and Japan for postwar 60 years starting at the early 1950s, thereby characterizing and comparing the three country experiences. Inflation is supposed to occur from firm’s optimal pricing policy similarly to Calvo, Rotemberg, and Roberts. Main generators of inflation are the demand-pull factor and the cost-push factor; the former is tied with demand pressure for output, while the letter with the rate of change of the ratio between the wage rate and average labor productivity. The relative strength of the two factors are derived year on year numerically to derive and compare the inflationary characteristics of the three coutries, and also policy implications are discussed.

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