Dispersion of Inflation Rates Essay Example | Topics and Well Written Essays - 1750 words

Dispersion of Inflation Rates - Essay Example According to the paper the 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 time without international transmission of inflationary forces because they respond in the same way to common causes. All countries have undergone long-period institutional and structural changes which, although not in themselves inflationary, have made 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 appendix to this paper. Another possible cause of a decrease in the dispersion of rates of change in consumer prices and other comprehensive price indexes, such as gross national produ ct deflators, is a convergence in the rates of productivity growth of different countries. These comprehensive price indexes tend to diverge from the corresponding 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.