BPEA | 1971 No. 1

Inflation in Recession and Recovery

Robert J. Gordon
Robert Gordon Headshot
Robert J. Gordon Stanley G. Harris Professor of the Social Sciences - Northwestern University

1971, No. 1

THE INTERVAL FROM 1969:3 TO 1970:4 qualifies as a full-fledgede conomic slowdown in which the official unemployment rate increased by 59 percent. But in the first year of every previous U.S. postwar recession, the rate of inflation was lower than it was in the last expansion year, while the rate of inflation was more rapid in 1970 than during any part of the previous business expansion. This paper develops wage and price equations that attempt, first, to explain why inflation accelerated in 1970 rather than slowing as it did during past recessions; second, to isolate the relative role of prices and wages in the 1970 episode; and third, to form predictions of wage and price behavior during the next ten years.