Inflationary Trends : Underlying Determinates Over the Business Cycle

Bacon, Edward

Inflationary Trends : Underlying Determinates Over the Business Cycle

Persistent URL

http://hdl.handle.net/10456/26233

Author(s)

Bacon, Edward

Date Issued

April 4, 2012

Abstract

The inflation rate is considered a critical measure of an economy’s health. Therefore, understanding what determines inflation and understanding how inflation correlates to other economic measures is an important objective in developing a strategy to maintain a stable economy. This paper first analyzes the historical trends of inflation, events such as the oil shocks of the 1970’s and the hyperinflation in Germany that occurred after World War I. This paper then reviews the theories and models of inflation, including the Phillips curve, which is the relationship between unemployment and the inflation rate, as well as the aggregate demand price adjustment model, which examines the relationship between the price level and deviations of GDP from potential. Finally, regression analysis is used to provide insight on the quantitative relationships between the economic elements that cause inflation and the strength of these relationships. These three components are combined to explain historical episodes of inflation and to offer explanations for inflationary changes throughout economic cycles.

First Reader(s)

Casler, Stephen