Aggregate demand and aggregate supply

Abstract Monetary policy tools, including money supply and interest rate, are the most popular instruments to control inflation around the globe. It is assumed that a tight monetary policy, either in form of reduction in money supply or an increase in interest rate, will reduce inflation by reducing aggregate demand in an economy. However, monetary policy could be counterproductive if cost side effects of monetary tightening prevail. High energy prices may increase the cost of production by reducing aggregate supply in the economy. If tight monetary policy is used to reduce this cost push inflation, the cost side effect of energy prices will add to cost side effects of monetary tightening and will become dominant. In this case, the monetary policy could be counterproductive. Furthermore, simultaneous reduction in aggregate supply and aggregate demand will bring twofold reduction in output. Therefore greater care is needed in the use of monetary policy in the situation of cost push inflation. This article investigates the presence of cost side effect of monetary transmission mechanism, the role of international oil prices in domestic inflation, and implications for monetary policy. The findings suggest that both monetary policy and oil prices have cost side effects on inflation and monetary tightening could be counterproductive if used to reduce energy pushed inflationary trend.

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The Transmission of Aggregate Supply and Aggregate Demand Shocks in Japan: Has There Been a Structural Change?

Studies in Nonlinear Dynamics & Econometrics ◽

10.2202/1558-3708.1342 ◽

2007 ◽

Vol 11 (4) ◽

Author(s):

Frédérique Bec ◽

Alexia Bastien

Keyword(s):

Structural Change ◽

Aggregate Demand ◽

Demand Shocks ◽

Aggregate Supply

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Aggregate Demand-Aggregate Supply Analysis: A History

History of Political Economy ◽

10.1215/00182702-34-2-321 ◽

2002 ◽

Vol 34 (2) ◽

pp. 321-364 ◽

Cited By ~ 5

Author(s):

A. K. Dutt

Keyword(s):

Aggregate Demand ◽

Aggregate Supply ◽

Supply Analysis

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DAMPAK FLUKTUASI NILAI TUKAR TERHADAP OUTPUT DAN HARGA: PERBANDINGAN DUA REZIM NILAI TUKAR

Buletin Ekonomi Moneter dan Perbankan ◽

10.21098/bemp.v10i1.217 ◽

2007 ◽

Vol 10 (1) ◽

pp. 3-22

Author(s):

Jardine A Husman

Keyword(s):

Exchange Rate ◽

Fiscal Policy ◽

Exchange Rate Regime ◽

Aggregate Demand ◽

Import Price ◽

Regime Switch ◽

Aggregate Supply ◽

Rate Fluctuation ◽

The Exchange Rate ◽

The Impact

This paper analyzes the impact of exchange rate fluctuation on the output and price in two different regimes. The model employed distinguishes four different sources of impacts on the output and price, namely the anticipated and the un-anticipated exchange rate movement, the aggregate demand and the aggregate supply shock.The result confirms the impact of the exchange rate regime switch on how the exchange rate influences the output. The net impact of Rupiah depreciation will expand the output, indicating the dominance of the aggregate the demand shock through the competitive advantage than the aggregate supply shock through import price effect.The regime switch also alters the effectiveness of the monetary and the fiscal policy on the output. The magnitude of monetary and fiscal policy is much larger than the exchange rate impact on output, both managed and free floating regime.Keywords: exchange rate, anticipated vs. unanticipated depreciation, supply vs. demand channels.JEL Classification: F41, F43, F31

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Regional Aspects of Demand and Supply Shocks: Economy of the Khabarovsk Territory During a Pandemic

Spatial Economics ◽

10.14530/se.2021.2.165-181 ◽

2021 ◽

Vol 17 (2) ◽

pp. 165-181

Author(s):

Artyom Isaev ◽

Keyword(s):

Negative Impact ◽

Supply And Demand ◽

Initial Period ◽

Aggregate Demand ◽

Point Of View ◽

Retail Trade ◽

Natural Rate ◽

Regional Labor Market ◽

Aggregate Supply ◽

The Impact

The article provides an overview of the short-term dynamics of macroeconomic indicators for the Khabarovsk Territory during the COVID-19 pandemic after the introduction of temporary restrictive measures in April and May 2020. The impact of these measures extended both to the elements of regional aggregate demand and aggregate supply. From the point of view of the theory of short-run economic fluctuations, aggregate supply and demand shocks, such as those that occurred in the initial period of the pandemic, lead to a reduction in aggregate output followed by an increase in actual and natural rate of unemployment. Expectations have an additional negative impact since the growth of uncertainty gives rise to an increase in savings and an additional reduction in consumer activity. In the case of Khabarovsk Territory it is shown that the most affected industries of the economy were retail trade and services. Both industries experienced a negative shock in April, but while the former began recovery as early as May, the latter returned to the growth trajectory only in June. Residents changed their income usage patterns due to the restrictions on the consumer market, as well as to increased uncertainty about their future income. The share of net savings and cash balances increased with a corresponding decrease in the share of spending on goods and services. A negative supply shock contributed to a sharp rise in unemployment up to 24.5 thousand unemployed in the third quarter of 2020. Starting from the fourth quarter unemployment began to decline rapidly, but it had not reached pre-pandemic level of less than 7 thousand unemployed by the second quarter of 2021. It is shown that the permanent population outmigration, which increased in 2020, is a specific feature of the regional labor market. It has slowed down the return of the regional aggregate supply to its pre-pandemic positions after the restrictions were cancelled

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