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Towards an Understanding of the Real Effects and Costs of Inflation

39 Pages Posted: 15 Jan 2002  

Stanley Fischer

Bank of Israel; National Bureau of Economic Research (NBER); International Monetary Fund (IMF)

Franco Modigliani

Massachusetts Institute of Technology (MIT) (Deceased)

Date Written: November 1978

Abstract

The organization of the paper is simple. We start by examining the real effects of anticipated inflation in an economy that has fully adapted to inflation. In particular, in this economy: (i) public institutions are fully attuned to inflation (or inflation proof), (ii) the same is true of private institutions, (iii) current and future inflation is fully reflected in inherited contracts, and (iv) future inflation is fully reflected in contracts for the future. After we have discussed the effects of anticipated inflation in this environment, we examine the real effects of inflation that arise as the assumptions (i) to (iv) are dropped one after the other. The effects cumulate in the sense that those present in the economy that has fully adapted to inflation are also present in economies with non-inflation proof institutions, and so on.

Suggested Citation

Fischer, Stanley and Modigliani, Franco, Towards an Understanding of the Real Effects and Costs of Inflation (November 1978). NBER Working Paper No. w0303. Available at SSRN: https://ssrn.com/abstract=260489

Stanley Fischer (Contact Author)

Bank of Israel ( email )

P.O. Box 780
Jerusalem, 91907
Israel

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

Francesco Modigliani

Massachusetts Institute of Technology (MIT) (Deceased) ( email )

100 Main Street
E62-416
Cambridge, MA 02142
United States

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