Reggie Middleton's Take on Investing for Inflation: Part II
As stated in part one of my inflation series of blog posts, I am not sure if we will have rampant inflation in the near to medium term (and I believe anyone who thinks they can accurately forecast such is in la-la land), but it is evident that interest rates and energy prices are going up while the effective affordability of major consumer items are going down. For instance, mortgage rates, 10 year treasuries, oil and gasoline have all spiked up recently. Home affordability, contrary to many reports in the popular media, is actually down. Without employment (or the promise of continued employment), it is harder to buy a home. Down payments are now a considerable barrier to many when it was not before. Now let it be known that I am far from an economist. I am a mere investor, but since most economists had no idea this malaise was coming and I saw it clearly, I am more than comfortable in issuing my 24 cents (it was my two cents, but I levered up 12x!).
Assuming a single family residential property has dropped about 20% in price from $200k to $160k (as per Case-Shiller housing index), you now have a 37.5% higher downpayment to make to get into said property, for the standard bank underwriting criteria demands a downpayment of 20% in lieu of 10% (and in many cases, 5%, 0% or a negative downpayment - money back at the closing) during the bubblicious hey day of "buy anything with no credit". As interest rates tick up in tandem with unemployment, this effective affordability actually goes down further despite the fact that the nominal price of housing is rapidly decreasing as well. This is exacerbated by the fact that the speculative investor and the move up buyer are essentially removed from the marketplace, primarily due to financing and equity issues (any property purchased at market price since 2003 or so is probably at par or underwater, hence equity rolling into another property is now impossible). It appears as if many are missing this rather important phenomenon, and it applies to many normally depreciating big ticket consumer discretionary items such as boats, recreational craft, etc. as well as luxury items such as 2nd homes. Believe it or not, if this carries on into the extreme, it actually has the potential to push upwards on rental prices despite a glut in housing inventory, for single family housing is very expensive to manage on mass rental basis, while condos are very expensive to convert into rental units from a cost and financing perspective. Thus extant apartment rental buildings will be the first to benefit from any demand in housing, sans a significant spike in income and savings (not possible in the short term), a drastic reduction in housing prices (the most likely scenario, but one that will wreck absolute havoc on the banking system since most pundits and analysts actually believe the housing market is already trying to turn around) or a return to the extremely lax underwriting standard of the housing bubble (both unlikely due to short term lessons learned and counterproductive for it will simply blow another bubble).
So here we have a theoretical (or not so) case where there is rampant deflation in asset prices, yet significant inflation in the input cost of said prices. Reggie's scenario of potential stagflation.
Redacted and annotated from Wikipedia, heavily peppered with my opinion and viewpoints:
Stagflation is an economic situation in which inflation and economic stagnation occur simultaneously and remain unchecked for a period of time. The portmanteau stagflation is generally attributed to British politician Iain Macleod, who coined the term in a speech to Parliament in 1965. The concept is notable partly because, in postwar macroeconomic theory, inflation and recession were regarded as mutually exclusive (as apparently is regarded in 2009, as well), and also because stagflation has generally proven to be difficult and costly to eradicate once it gets started.
Economists offer two principal explanations for why stagflation occurs. First, stagflation can result when an economy is slowed by an unfavorable supply shock, such as an increase in the price of oil in an oil importing country, which tends to raise prices at the same time that it slows the economy by making production less profitable.
NYMEX CRUDE OIL - last 30 days...
C1 Reformulated Gas - lat 30 days
This type of stagflation presents a policy dilemma because most actions to assist with fighting inflation worsen economic stagnation and vice versa. Second, both stagnation and inflation can result from inappropriate macroeconomic policies. For example, central banks can cause inflation by permitting excessive growth of the money supply, and the government can cause stagnation by excessive regulation of goods markets and labor markets; together, these factors can cause stagflation. Both types of explanations are offered in analyses of the global stagflation of the 1970s: it began with a huge rise in oil prices, but then continued as central banks used excessively stimulative monetary policy (TARP, TALF, PPIP, AIG, GSEs, Bear Stearns, Treasury purchases, MBA purchases, excepting common equity as collateral, accepting trash ABS/MBS as collateral, expanding the discount window, the list can go on for quite some time) to counteract the resulting recession, causing a runaway wage-price spiral.
Graphic from WSJ.com
Now, be aware that I disagree with those inflation hawks who feel that the spike in bank deposits itself will cause rampant inflation since I believe that net credit to consumers and corporates has shrunk tremendously. The largest driver of lending capacity, by far, was the securitization market, which is for all intents and purposes quite dead.
You can download the Fed's most recent monthly report for a more granular view.
John Maynard Keynes wrote in The Economic Consequences of the Peace that governments printing money and using price controls were causing a combination of inflation and economic stagnation in Europe after World War I.
Postwar Keynesian and monetarist views
Early Keynesianism and monetarism
Up to the 1960s many Keynesianeconomists ignored the possibility of stagflation, because historical experience suggested that high unemployment was typically associated with low inflation, and vice versa (this relationship is called the Phillips curve). The idea was that high demand for goods drives up prices, and also encourages firms to hire more; and likewise high employment raises demand. However, in the 1970s and 1980s, when stagflation occurred, it became obvious that the relationship between inflation and employment levels was not necessarily stable: that is, the Phillips relationship could shift. Macroeconomists became more skeptical of Keynesian theories, and the Keynesians themselves reconsidered their ideas in search of an explanation of stagflation.
The explanation for the shift of the Phillips curve was initially provided by the monetarist economist Milton Friedman, and also by Edmund Phelps. Both argued that when workers and firms begin to expect more inflation, the Phillips curve shifts up (meaning that more inflation occurs at any given level of unemployment). In particular, they suggested that if inflation lasted for several years, workers and firms would start to take it into account during wage negotiations, causing workers' wages and firms' costs to rise more quickly, thus further increasing inflation. While this idea was a severe criticism of early Keynesian theories, it was gradually accepted by the Neo-Keynesians.
Contemporary Keynesian analyses argue that stagflation can be understood by distinguishing factors that affect aggregate demand from those that affect aggregate supply. While monetary and fiscal policy can be used to stabilize the economy in the face of aggregate demand fluctuations, they are not very useful in confronting aggregate supply fluctuations. In particular, an adverse shock to aggregate supply, such as an increase in oil prices, can give rise to stagflation.
Neo-Keynesian theory distinguished two distinct kinds of inflation: demand-pull (caused by shifts of the aggregate demand curve) and cost-push (caused by shifts of the aggregate supply curve). Stagflation, in this view, is caused by cost-push inflation. Cost-push inflation occurs when some force or condition increases the costs of production. This could be caused by government policies (such as taxes), or from purely external factors such as a shortage of natural resources or an act of war.
Supply theoriesare based on the neo-Keynesian cost-push model and attribute stagflation to significant disruptions to the supply side of the supply-demand market equation, for example, when there is a sudden real or relative scarcity of key commodities, natural resources, or natural capital needed to produce goods and services. Other factors may also cause supply problems, for example, social and political conditions such as policy changes, acts of war, restrictive socialist or nationalist control of production. In this view, stagflation is thought to occur when there is an adverse supply shock (for example, a sudden increase in the price of oil or a new tax) that causes a subsequent jump in the "cost" of goods and services (often at the wholesale level). In technical terms, this results in contraction or negative shift in an economy's aggregate supply curve.
In the resource scarcity scenario (Zinam 1982), stagflation results when economic growth is inhibited by a restricted supply of raw materials. That is, when the actual or relative supply of basic materials (fossil fuels (energy), minerals, agricultural land in production, timber, etc.) decreases and/or cannot be increased fast enough in response to rising or continuing demand. The resource shortage may be a real physical shortage or a relative scarcity due to factors such as taxes or bad monetary policy which have affected the "cost" or availability of raw materials. This is consistent with the cost-push inflation factors in neo-Keynesian theory (above). The way this plays out is that after supply shock occurs, the economy will first try to maintain momentum - that is, consumers and businesses will begin paying higher prices in order to maintain their level of demand. The central bank may exacerbate this by increasing the money supply, by lowering interest rates for example, in an effort to combat a recession. The increased money supply props up the demand for goods and services, though demand would normally drop during a recession. Think about the events of the recent past (or look at the charts above to refresh your memory), and let me know if this appears to be a distinct possibility.
In the Keynesian model, higher prices will prompt increases in the supply of goods and services. However, during a supply shock (i.e. scarcity, "bottleneck" in resources, etc.), supplies don't respond as they normally would to these price pressures. So, inflation jumps and output drops, producing stagflation.
Explaining the 1970s stagflation
Following Richard Nixon's imposition of wage and price controls on August 15, 1971, an initial wave of cost-push shocks in commodities was blamed for causing spiraling prices. Perhaps the most notorious factor cited at that time was the failure of the Peruvian anchovy fishery in 1972, a major source of livestock feed. The second major shock was the 1973 oil crisis, when the Organization of Petroleum Exporting Countries (OPEC) constrained the worldwide supply of oil. Both resulted in actual or relative scarcity of raw materials. The price controls resulted in shortages at the point of purchase, causing, for example, queues of consumers at fueling stations and increased production costs for industry.
(In recent news: IEA Sees Oil-Supply Crunch by 2013 on Slow Investment and the Energy Information Administration outlook:
Overview. Oil prices rose for the third consecutive month in May, driven in part by expectations of a global economic recovery and future increases in oil consumption. In addition, a weaker dollar and increasing financial market activity are prompting higher prices for commodities, overshadowing weak oil supply and demand fundamentals. The weaker dollar may indicate that economic activity abroad, especially in Asia, is stronger than currently estimated, which would provide an upside risk to the oil price forecast. Downside risks, such as continuing weak demand as indicated by sluggish first quarter 2009 oil consumption data, high inventories, and increased surplus production capacity levels within the Organization of the Petroleum Exporting Countries (OPEC) could moderate the upward price pressure, especially if the global economic recovery is delayed and/or weaker than expected.).
Under this set of theories, the solution to stagflation is to restore the supply of materials. In the case of a physical scarcity, stagflation is mitigated either by finding a replacement for the missing resources or by developing ways to increase economic productivity and energy efficiency so that more output is produced with less input. For example, in the late 1970s and early 1980s, the scarcity of oil was relieved by increases in both energy efficiency and global oil production. This factor, along with adjustments in monetary policies, helped end stagflation.
A purely neoclassical viewof the macroeconomy rejects the idea that monetary policy can have real effects. Neoclassical macroeconomists argue that real economic quantities, like real output, employment, and unemployment, are determined by real factors only. Nominal factors like changes in the money supply only affect nominal variables like inflation. The neoclassical idea that nominal factors cannot have real effects is often called 'monetary neutrality' or also the 'classical dichotomy'.
Since the neoclassical viewpoint says that real phenomena like unemployment are essentially unrelated to nominal phenomena like inflation, a neoclassical economist would offer two separate explanations for 'stagnation' and 'inflation'. Neoclassical explanations of stagnation (low growth and high unemployment) include inefficient government regulations or high benefits for the unemployed that give people less incentive to look for jobs. Another neoclassical explanation of stagnation is given by real business cycle theory, in which any decrease in labour productivity makes it efficient to work less. The main neoclassical explanation of inflation is very simple: it happens when the monetary authorities increase the money supply too much.
In the neoclassical viewpoint, the real factors that determine output and unemployment affect the aggregate supply curve only. The nominal factors that determine inflation affect the aggregate demand curve only. When some adverse changes in real factors are shifting the aggregate supply curve left at the same time that unwise monetary policies are shifting the aggregate demand curve right, the result is stagflation.
Thus the main explanation for stagflation under a classical view of the economy is simply policy errors that affect both inflation and the labor market. Ironically, a very clear argument in favor of the classical explanation of stagflation was provided by Keynes himself. In 1919, John Maynard Keynes described the inflation and economic stagnation gripping Europe in his book The Economic Consequences of the Peace. Keynes wrote:
"Lenin is said to have declared that the best way to destroy the Capitalist System was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some." [...]
"Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose."
Keynes explicitly pointed out the relationship between governments printing money and inflation.
"The inflationism of the currency systems of Europe has proceeded to extraordinary lengths. The various belligerent Governments, unable, or too timid or too short-sighted to secure from loans or taxes the resources they required, have printed notes for the balance." [or in the case of the new millenium USA, "unable, or too timid or too short-sighted to" allow the natural creative destruction that would drive th imprudent businesses that caused this turmoil to fail in order to allow the Pheonix (guys like me) to rise from the ashes].
Keynes also pointed out how government price controls discourage production.
"The presumption of a spurious value for the currency, by the force of law expressed in the regulation of prices, contains in itself, however, the seeds of final economic decay, and soon dries up the sources of ultimate supply. If a man is compelled to exchange the fruits of his labors for paper which, as experience soon teaches him, he cannot use to purchase what he requires at a price comparable to that which he has received for his own products, he will keep his produce for himself, dispose of it to his friends and neighbors as a favor, or relax his efforts in producing it. A system of compelling the exchange of commodities at what is not their real relative value not only relaxes production, but leads finally to the waste and inefficiency of barter."
Keynes detailed the relationship between German government deficits and inflation.
"In Germany the total expenditure of the Empire, the Federal States, and the Communes in 1919-20 is estimated at 25 milliards of marks, of which not above 10 milliards are covered by previously existing taxation. This is without allowing anything for the payment of the indemnity. In Russia, Poland, Hungary, or Austria such a thing as a budget cannot be seriously considered to exist at all."
"Thus the menace of inflationism described above is not merely a product of the war, of which peace begins the cure. It is a continuing phenomenon of which the end is not yet in sight."
Keynesian in the short run, classical in the long run
While most economists believe that changes in money supply can have some real effects in the short run, neoclassical and neo-Keynesian economists tend to agree that there are no long run effects from changing the money supply. Therefore, even economists who consider themselves neo-Keynesians usually believe that in the long run, money is neutral. In other words, while neoclassical and neo-Keynesian models are often seen as competing points of view, they can also be seen as two descriptions appropriate for different time horizons. Many mainstream textbooks today treat the neo-Keynesian model as a more appropriate description of the economy in the short run, when prices are 'sticky', and treat the neoclassical model as a more appropriate description of the economy in the long run, when prices have sufficient time to adjust fully.
Therefore, while mainstream economists today might often attribute short periods of stagflation (not more than a few years) to adverse changes in supply, they would not accept this as an explanation of very prolonged stagflation. More prolonged stagflation would be explained as the effect of inappropriate government policies: excessive regulation of product markets and labor markets leading to long run stagnation, and excessive growth of the money supply leading to long run inflation.
As differential accumulation
Political economists Jonathan Nitzanand Shimshon Bichler have proposed an explanation of stagflation as part of a theory they call differential accumulation, which says firms seek to beat the average profit and capitalization rather than maximize. According to this theory, periods of mergers and acquisitions oscillate with periods of stagflation. When mergers and acquisitions are no longer politically feasible (governments clamp down with anti-monopoly rules), stagflation is used as an alternative to have higher relative profit than the competition. With increasing mergers and acquisitions, the power to implement stagflation increases.
Stagflation appears as a societal crisis, such as during the period of the oil crisis in the 70s and in 2006 to 2008. Inflation in stagflation, however, doesn't affect all firms equally. Dominant firms are able to increase their own prices at a faster rate than competitors. While in the aggregate no one appears to be profiting, differentially dominant firms improve their positions with higher relative profits and higher relative capitalization. Stagflation is not due to any actual supply shock, but because of the societal crisis that hints at a supply crisis. It is mostly a 20th and 21st century phenomena that has been mainly used by the "weapondollar-petrodollar coalition" creating or using Middle East crises for the benefit of pecuniary interests.
Demand-pull stagflation theory
Demand-pull stagflation theory explores the idea that stagflation can result exclusively from monetary shocks without any concurrent supply shocks or negative shifts in economic output potential. Demand-pull theory describes a scenario where stagflation can occur following a period of monetary policy implementations that cause inflation. This theory was first proposed in 1999 by Eduardo Loyo of Harvard University's John F. Kennedy School of Government.
Quality of money theories
Modern monetary economics assumes that a crucial role for central banks in maintaining stable prices is management of inflationary expectations. Thus central banks make every effort to appear not to pursue growth if a further stimulation of growth would fuel higher inflation. This theory rests on the fact that the overall marketplace is attuned to the possibility that when a central bank allows excessive inflation, higher long-term interest rates result, which lead to higher prices followed by higher wage demands in subsequent labor negotiations. Left unchecked, this is seen to bring round after round of greater inflation, which is known as the "inflationary spiral". Inflation can thus be seen to be embedded in the self-fulfilling nature of inflationary expectations. One school of thought is that inflation targeting and other forms of limited central bank discretion are the best way to maintain low inflationary expectations. The Federal Reserve in the US has, however, managed to drive inflationary expectations to a quite low level while maintaining broad policy discretion. These theories are often combined with "quantity" theories of money supply, though not always.
Quantity theories of inflation, such as monetarism, argue that inflation is due to the money supply rather than demand and predict that inflation can occur with high unemployment if the government increases the money supply in a period of rising prices.
Traditional economists distinguish between modern usage of the inflation. and the origin of the term within economics, a social science which aims to explain how economies work and how economic agentsinteract. Popular modern economics equates inflation with price inflation, increases in overall and price levels.
It can therefore be seen that in terms of the origin of the word "inflation", the combination of a declining Gross Domestic Product and increasing money supply over a prolonged period, as has been seen in response to the Financial crisis of 2007-2009 can be directly equated to ongoing current stagflation. However, this explanation does not make sense to most economists,since the United States experienced deflation for the first time since the 1950s in 2008-2009, suggesting that the Financial crisis of 2007-2009 is more akin to traditional deflationary or low-inflation recessions and depressions. The accuracy of this viewpoint remains to be seen as the crisis plays itself out, for input costs and consumer prices may again rise as productivity, employment, affordability and GDP fall. Then again, I am not an economist and probably don't make sense to most economists.
Considerations for monetary policy during periods of stagflation
Stagflation becomes a dilemma for monetary policy when policies usually used to increase economic growth will further increase runaway inflation while policies used to fight inflation will further the decline of an already-declining economy.
An important monetary mechanism to increase economic growth is by lowering interest rates, which reduces the cost for consumers to buy products on credit and businesses to borrow to expand production. While this can increase economic activity, it can also result in increased inflation. The monetary mechanism to reduce inflation is by raising interest rates, which increases the cost for consumers to buy products on credit and businesses to borrow to expand production. While this can reduce inflation, it can also result in decreased economic activity.
Stagflation becomes a problem only when the impact of the further use of the principal monetary policy tool available to assist central bank direction of the domestic economy does more marginal harm than marginal good, if used. Ultimately, the central bank can either stimulate the economy or attempt to rein it in through the mechanism of adjusting the domestic interest rate, its primary tool. The issue here, as in the earlier part of this decade, is if or when the central bank actually loses control of interest rates. Ex. Fed chairman Greenspan saw the "irrational exuberance" of the markets and tried to quell it by raising the Fed interest rate targets after he had dropped precipitously, yet mortgage rates failed to act in tandem and the greatest housing bubble in the history of this country simply blew bigger, and bigger - despite rampant and significant interest rate increases. Fast forward 6 years, and the current Fed chairman Bernanke may very well be faced with inverse of that very same conundrum. He has dropped real rates to effectively below zero and has become even more aggressive by not only maintaining a ZIRP (zero interest rate policy) but employing quantitative easing to synthetically and artificially push mortgage rates and treasuries (through outright asset purchases powered by the Fed's balance sheet) lower than they naturally would be. It appears as if market forces are pushing back, causing both Treasury yields and mortgage rates to rise, and risk both quickly and substantially. Is this a mere technicial blip or has the US Federal Reserver again lost control of interest rates through ineffective policy? Does this threaten a stagflationary environment? Inquiring minds want to know...
A choice can be implemented that tends to improve growth, but does it ignite systemic inflation? A choice can be implemented that tends to fight inflation, but how badly does it impinge growth? During periods properly described as stagflation both problems co-exist. In modern times, it will be only after the central bank has used all possible tools to meet both goals, using the best quantitative measures it has at its disposal, for stagflation to occur (uhm.. that would be now, wouldn't it?). Major economic conditions of unusual proportion will have already created near-crises on both fronts before stagflation can set in again. Stagflation is the name of the dilemma that exists when the central bank has rendered itself powerless to fix either inflation or stagnation.
The problem for fiscal policy is far less clear. Both revenues and expenditures tend to rise with inflation, and with balanced budget politics, they fall as growth slows. Unless there is a differential impact on either revenues or spending due to stagflation, the impact of stagflation on the budget balance is not altogether clear. One school of thought is that the best policy mix is one in which government stimulates growth through increased spending or reduced taxes, while the central bank fights inflation through higher interest rates. Whatever theory is employed, coordinating fiscal and monetary policy is not an easy task.
Stagflation undermined faith in a Keynesian consensus, and placed renewed emphasis on microeconomic behavior, particularly neo-classical economicswith its attempt to root macroeconomics in microeconomic formalisms. The rise of conservative theories of economics, including monetarism, can be traced to the perceived failure of Keynesian policies to combat stagflation or explain it to the satisfaction of economists and policy-makers.
Federal Reserve chairman Paul Volcker very sharply increased interest rates from 1979-1983 in what was called a "disinflationary scenario." After U.S. prime interest rates had soared into the double-digits, inflation did come down. Volcker is often credited with having stopped at least the inflationary side of stagflation, although the American economy also dipped into recession. Starting in approximately 1983, growth began a recovery. Both fiscal stimulus and money supply growth were policy at this time. A five-to-six-year jump in unemployment during the Volcker disinflation suggests Volcker may have trusted unemployment to self-correct and return to its natural rate within a reasonable period.
Supply-side economics emerged as a response to US stagflation in the 1970s. It largely attributed inflation to the ending of the Bretton Woods system in 1971 and the lack of a specific price reference in the subsequent monetary policies (Keynesian and Monetarism). Supply-side economists asserted that the contraction component of stagflation resulted from an inflation-induced rise in real tax rates (see bracket creep)
In the 21st century
Those who adhere to the view of stagnation in the 21st century suggest that the condition is a direct result of the prolonged maintenance of low, even non-economically low, interest rates by the U.S. Federal Reserve, starting in the Fall of 2001. Low interest rates elevated housing values, triggering an enormous increase in credit activity worldwide which ended with the beginning of the Credit Crisis in 2007.
A series of dramatic rate lowerings by the U.S. Federal Reserve designed to fight the Credit Crisis caused commodity prices to soar. For example, there was a one-year gain in the price of oil from about $70 per barrel to about $147 per barrel at the July, 2008 peak, depending on market and grade. Agricultural commodities, many base metals, precious metals and most major currencies also appreciated significantly against the U.S. dollar during or before this rise in the price of oil, even provoking some government and inter-governmental agency action in currency and commodity markets.
Economic growth slowed as punidts saw hope fade that a "post-Credit-Crisis period" had dawned, resulting in a recognition published in late 2008 by the National Bureau of Economic Researchthat acknowledged that a recession had begun in the developed economies a year earlier. The major developed economies almost universally reacted by "printing money"; in the United States alone, permanent funding approaches a total of one trillion dollars and temporary funding is nearly double that much. In parallel, the U.S. central bank again lowered interest rates to a further non-economic low in parallel with similar moves across Europe. European central banks also put forth nearly two trillion dollars to recapitalize crippled banks. There is wide-spread recognition in the economic community that periods of intense monetary inflation are invariably followed sooner or later by intense price inflation. As a result, long-term interest rates edged upward, with the cost of a 30-year mortgage in the U.S. rising from 5.75% to 6.25%, then dropping to 4.25% as a result of concerted fiscal and monetary actions, yet raising recently to over 5.7% as it continues its march higher. Let it be known that the aforementioned drop in mortgage pricing came only after the Fed's unprecedeted step of buying MBS directly while the government literally took over the largest conforming MBS and mortgage entities in the world. These are classic causes of inflation during recession, i.e., stagflation.
Before a classic stagflation situation settles in, short-term price declines often occur across the spectrum of industry. This results because producers and manufacturers respond to the declining demand associated with the recession component of stagflation by slashing prices to non-economically low levels. "Deflation" is then hailed by policymakers as an excuse to further stimulate the economy, as occurred in late 2008 on both sides of the Atlantic Ocean. Attrition within individual industries then occurs as the stronger firms survive and the weaker firms are unable to bear periods of losses. Such an event is the step which compels surviving firms to seek to re-enter the supply-demand curve based on smaller projected sales volume expectations, less competition and with the consequently higher prices which are expected to restore profitability.
However, in tandem with or somewhat before the July 2008 peak price in oil, most major exchange-traded commodities began to fall rapidly in price, suggesting to yet other economists and commentators that a trend of deflation - rather than inflation or stagflation - might occur.
- ^ Blanchard, Olivier (2000). Macroeconomics (2nd ed.). Prentice Hall. pp. G8. ISBN 013013306X.
- ^ Online Etymology Dictionary. Douglas Harper, Historian. http://dictionary.reference.com/browse/stagflation (accessed: May 05, 2007).
- ^ British House of Commons' Official Report (also known as Hansard), 17 November 1965, page 1,165.
- ^ Edward Nelson and Kalin Nikolov (2002), Bank of England Working Paper #155 (Introduction, page 9).(Note: Nelson and Nikolov also point out that the term 'stagflation' has sometimes been erroneously attributed to Paul Samuelson.)
- ^ J. Bradford DeLong (3-10-1998). "Supply Shocks: The Dilemma of Stagflation". University of California at Berkeley. http://econ161.berkeley.edu/multimedia/ASAD1.html. Retrieved on 2008-01-24.
- ^ Burda, Michael; Wyplosz, Charles (1997), Macroeconomics: A European Text, 2nd ed., Oxford University Press, pp. 338-339
- ^ Hall, Robert; John Taylor (1986). Macroeconomics: Theory, Performance, and Policy. Norton. ISBN 039395398X.
- ^ Blanchard (2000), op. cit., Ch. 9, pp. 172-173, and Ch. 23, pp. 447-450.
- ^ Blanchard (2000), op. cit., Ch. 22-2, pp. 434-436.
- ^ Barsky, Robert; Kilian, Lutz (2000), A Monetary Explanation of the Great Stagflation of the 1970s, University of Michigan 
- ^ Blanchard (2000), op. cit., Chap. 28, p. 541.
- ^ Abel, Andrew; Ben Bernanke (1995). "Chap. 11". Macroeconomics (2nd ed.). Addison-Wesley. ISBN 0201543923.
- ^ Bronfenbrenner, Martin (1976). "Elements of Stagflation Theory". Zeitschrift für Nationalökonomie 36: 1-8. doi:10.1007/BF01283912.
- ^ Smith, V.Kerry (1979), Scarcity and Growth Reconsidered, Johns Hopkins Press for Resources for the Future
- ^ Krautkraemer, Jeffrey (March, 2002), ECONOMICS OF SCARCITY: STATE OF THE DEBATE, Washington State University
- ^ Humphrey, Thomas M. (1973). "Historical Origins of the Cost-Push Fallacy" (PDF). Economic Quarterly, Federal Reserve Bank of Richmond, Summer 1998, v.98 No.3. https://www.richmondfed.org/publications/economic_research/economic_quarterly/pdfs/summer1998/humphrey.pdf.
- ^ "Over a Barrel". Time Magazine. http://www.time.com/time/magazine/article/0,9171,926216,00.html.
- ^ ("Panic at the Pump". Time Magazine. http://www.time.com/time/magazine/article/0,9171,908367-1,00.html.
- ^ Abel & Bernanke (1995), op. cit., Ch. 11.
- ^ Abel & Bernanke (1995), op. cit., Ch. 11, pp. 378-9.
- ^ Barro, Robert; Vittorio Grilli (1994). European Macroeconomics. Macmillan. ISBN 0333577647.
- ^ Abel & Bernanke (1995), Ch. 11, pp. 376-7.
- ^ Nitzan, Jonathan (June 2001). "Regimes of differential accumulation: mergers, stagflation and the logic of globalization". Review of International Political Economy 8 (2): 226-274. doi:10.1080/09692290010033385. http://bnarchives.yorku.ca/3/.
- ^ Loyo, Eduardo (June 1999), Demand-Pull Stagflation (Draft Working Paper), National Bureau of Economic Research New Working Papers 
- ^ Money Largely Accounts for Increased Unemployment during Stagflation, Shows a Recent Study -- News article on the paper, Inflation and Unemployment in the Long Runby Aleksander Berensten (University of Basel), Guido Menzio and Randall Wright (University of Pennsylvania)
- ^ Michael F. Bryan, "On the Origin and Evolution of the Word 'Inflation'"
- ^ http://www.newyorkfed.org/markets/statistics/dlyrates/fedrate.html
- ^ http://www.nber.org/cycles/recessions_faq.html
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