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"Aggregate Price Changes and Price Expectations," Federal Reserve Bank of St. Louis Review, November 1970, 18-28.
pdf file (1,758KB).

Abstract

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Comments

This paper discusses the basic price equation in my forecasting model--see 1971#5. On page 19 of this paper it is noted that the price equation is a reduced form equation in that the wage rate is not an explanatory variable in the price equation. The use of reduced form price equations was popularized by Robert Gordon beginning in the early 1980s (see, for example, Robert J. Gordon, "Comments on George L. Perry, 'Inflation in Theory and Practice,'", Brookings Papers on Economic Activity, 1980, 1, 249-257). However, when I moved from my forecasting model to my current model in the mid 1970s, I switched from the reduced form price equation to structural price and wage equations. See Chapter 5 in 1976#1 for the first econometric specification of these equations, and see 1997#2 for a recent discussion of how these equations relate to the standard reduced form NAIRU equation.