Peter Dorman reminds us of a discussion we had awhile back on pen-l:
>>I just read David Colander's critique of AS/AD in the latest JEP. It is
strongly worded, but the substance of his critique is much weaker than the
arguments I and others presented on this list a while back. His proposed
reconstruction is, I think, a nonstarter.<<
I haven't read Colander's article, but I just want to remind folks of my
effort to reconstruct AS/AD if one is forced to teach it. It centers on
the following equation:
current "core" inflation additional
inflation = rate, reflecting + inflation, to be
rate expectations, the explained by
the wage/price changes in either
spiral, etc. AS or AD or both,
(inertial or including _induced_
built-in inflation) AS shifts if GDP is high.
The core rate rises if the additional inflation is persistently above the
current core rate -- or falls if the additional inflation is below it.
I emphasize the _ratchet effect_ so that inflation tends to fall more
slowly than it rises.
in pen-l solidarity,
Jim Devine [EMAIL PROTECTED]
Econ. Dept., Loyola Marymount Univ., Los Angeles, CA 90045-2699 USA
310/338-2948 (daytime, during workweek); FAX: 310/338-1950
"It takes a busload of faith to get by." -- Lou Reed.
