Comments by Robert J. Gordon.

This article comments on a research which discussed an economic model which would assess wage-setting process that underlies macro inflation. Today most disputes about inflation, focus on the speed of adjustment of inflation to shifts in nominal aggregate demand. Three main views of the inflation process compete for attention, differing mainly on this adjustment speed. First is the mainline view by George Perry which in its usual version makes wage change a function of lagged consumer price inflation, lagged wages, and a single demand variable, the inverse of an unemployment rate weighted to remove the impact of demographic shifts. At the other extreme is the second major approach to inflation, the Lucas-Sargent proposition of policy ineffectiveness. Although usually stated as a theory of output determination, it implies that the contemporaneous elasticity of price change to a fully anticipated change in aggregate demand is exactly unity. finally, teh credibility hypothesis of William Fellner also assumes a high elasticity of price change to a credible shift in demand growth engineered by policymakers, but he is vague about the length of time needed for the public to conclude that a given policy shift is permanent rather than temporary.