monetarism and the us economy we take a small macroeconomic model due to stein designed to capture the essential aspects of keynesian and monetarist propositions especially on the question of crowding out we show that stein s empirical procedure is inadequate he ignores the restrictions that he imposed on the structure of his model and concentrates on single equation reduced form estimation we are able to derive complete maximum likelihood estimates of the structural parameters subject to the non linear restrictions of the model using identical data and the same specifications but with these more appropriate estimation techniques we show that conclusions opposite to those of stein may be reached

why are taxes so high in egalitarian societies in an analysis of the relative income or relative consumption hypothesis it is shown that if the ratio of agent i s consumption to agent j s consumption enters into the utility function a tax on labor income may increase welfare for all agents if pretax wage inequality is low all agents will unanimously be in favor of such a tax thus there will be a tendency for taxes to be high in societies where pretax wage inequality is low copyright 1995 by the editors of the scandinavian journal of economics

some aspects of the taxation of capital gains abstract the analysis of the effects of capital gains taxation requires a careful modelling both of the details of the tax code and the imperfections in the capital market under the standard assumptions concerning perfect capital markets and under the standard idealizations of the tax code there are several strategies by which rational investors can avoid note only all taxes on their capital income but also all taxes on their wage income these strategies leave individuals consumption and bequests in each state of nature and at each date unchanged from what they would have been in the absence of taxes although certain detailed provisions of the tax code may limit the extent to which rational investors can avail themselves of these tax avoidance activities there are ways in a perfect capital market by which the effects of these restrictions can be ameliorated accordingly any analysis of the effects of capital taxation must focus on imperfect capital markets if individuals face limitations on the amounts which they can borrow and or if there are limitations on short sales then under some circumstances there is a locked in effect individuals do not sell securities which they would have sold in the absence of taxation but under other circumstances individuals are induced to sell securities that they otherwise would have held in order to take advantage of the asymmetric treatment of short term losses and long term gains a policy of realizing gains as soon as they become eligible for long term treatment dominates the policy of postponing the realization of capital gains provided the gains are not too large a simple general equilibrium model is constructed within which it is shown that the taxation of capital gains may increase the volatility of asset prices and lead individuals not to trade when they otherwise would while the analysis casts doubt on the significance of the welfare losses resulting from these exchange inefficiencies there are circumstances in which the tax leads to production inefficiencies e g terminating projects at other than the socially optimal date finally we argue that the focus of some recent policy debates on the short run revenue impact of a decrease in the tax rate on capital gains is misplaced even when the short run revenue impact is positive consumption may increase thus exacerbating inflationary pressures and private savings may decrease thus leading to a lower level of investment in the private sector moreover there is some presumption that the long run revenue impact is negative our analysis has some important implications for empirical research in particular it suggests that the impact of the tax is not adequately summarized by a single number such as the effective tax rate representing the average ratio of tax payments to capital gains moreover the impact of the tax cannot be assessed by looking only at reported capital gains and losses

on the optimality of the nordic system of dual income taxation abstract in recent years the nordic countries have introduced a so called dual income tax which combines a proportional tax on capital income with progressive taxation of labour income the paper argues that this asymmetric treatment of the two types of income can be defended on pure efficiency grounds because the progressivity of the labour income tax serves to reduce the private return to human capital investment thereby offsetting the tendency of a proportional comprehensive income tax to discriminate in favour of such investment the analysis is based on an overlapping generations model of a small open economy where consumers face a trade off between investment in human capital and investment in non human capital extended versions of the model allow for liquidity constraints and an endogenous labour leisure choice

tax planning of married couples and intra household income inequality abstract this paper examines tax planning of married couples under separate taxation it shows that concerns about the intra household income distribution prevent couples from minimizing tax payments the empirical analysis exploits a specific feature of the german tax system which allows married couples to save taxes by deviating from the default symmetric payroll tax treatment and assigning favorable tax treatment to the primary earner and unfavorable tax treatment to the secondary earner based on a representative random sample of individual tax files we find that a couple is less likely to choose the tax minimizing treatment if tax planning is associated with a larger decline of the net of tax income of the secondary earner this applies regardless of whether the husband or the wife is the main earner however couples where the wife is the main earner are generally more reluctant to assign the more favorable tax treatment to the wife

interaction between central bank behaviour and fiscal policy the us case federal reserve behaviour is analysed using a model which incorporates an effect an effect of iscal pressure on monetary policy formulation incentive structures are hypothesized to be such that the central bank plans over a longer horizan than that relevant to the administration with the cyclically adjusted deficit proxying for fiscal pressure from the administration the response to the deficit then plays an interactive role in affecting the trade off weights applied to the competing goals of monetary policy the model performs well for the usa and provides a pattern of policy that is stable over the full 1961ndash 83 period

examining the relationship between stock return volatility and trading volume new evidence from an emerging economy using daily stock return data for individual stocks from an emerging economy this article examines the relationship between return volatility and trading volume under the theoretical postulate of the mixture of distributions hypothesis the results suggest that the contemporaneous trading volume as a proxy for latent information arrival to the market did not contribute to the removal of significant arch or generalized autoregressive conditional heteroscedasticity effects that are found in stocks at the first stage of the investigation the same holds for the lagged volume except for one case this perhaps suggests that the trading volume contemporaneous or lagged is not adequately conveying information to induce traders views of the desirability of trade and therefore points to the need for searching for other micro and macro variables to be used as potential proxy for information arrival to the stock market of the emerging economy

assessing empirical approaches for analyzing taxes and labor supply recent surveys on the labor supply responses of men document a divergence in the estimates of substitution and income effects obtained using various estimation approaches generally studies accounting for nonlinear tax schedules in a static setting via a piecewise linear approach produce estimates that typically imply higher substitution and lower income responses than are suggested by empirical work applying other approaches this paper demonstrates that maximum likelihood estimation of a consumer choice problem with nonlinear budget sets implicitly relies on the satisfaction of inequality constraints that translate into behaviorally meaningful restrictions these constraints arise not as a consequence of economic theory but instead as a requirement to create a properly defined statistical model in the analysis of piecewise linear budget sets the implicit constraints required by maximum likelihood in estimation amount to imposition of slutsky conditions at all wage income combinations associated with kink points in the analysis of differentiable budget sets the tacit constraints invoked by maximum likelihood also involve inequality restrictions on slutsky terms the empirical work presented in this study supports the contention that these implicit constraints play a major role in explaining the discrepancies in estimates found in the literature on men s labor supply

money inflation and causality in a financially repressed economy algeria 1970 88 the objective of the paper is to replicate tests identifying the line of causality between the money supply and the rate of inflation using algerian date for the period 1970 88 and provide new evidence for a developing economy the methodology adopted is that of granger and the results show that there is a very strong relationship between the money supply and the rate of inflation with the line of causation being unidirectional that is from the money supply to inflation with no feedback effects

inflation money interest rate exchange rate and casuality the case of egypt morocco and tunisia this study provides further evidence of the inflationary efects of the rates of growth of money supply gross domestic product efective exchange rate and imported inflation for egypt morocco and tunisia using quarterly data from 1964 to 1990 in addition it examines the granger causality between inflation and money supply as well as between inflation and the real exchange rate in the countries under consideration most of the results are consistent with extant theory and empirical evidence

investments in human capital wage uncertainty and public policy abstract the importance of risk characteristics of human capital for the design of tax and education policy is explored wages are uncertain and education while increasing the expected wage may increase or decrease wage variance the government has strong reasons to encourage human capital formation in the latter case partly due to the insurance effect of human capital and partly due to the way the individuals under a plausible restriction on prudence respond to changes in risk the analysis is illustrated using two models of education one where education helps the individuals make better occupational choices and a standard risk augmented becker type model

testing the exogeneity of economic time series an application of innovation accounting this paper proposes and presents an testable sufficient condition for testing the exogeneity of economic time series using sims 1980a innovation accounting within an unconstrained vector autoregressive model it is demonstrated that if each explanatory variable of a model is sequentially placed in the last position of the ordering of variables during orthogonalization then strict exogeneity of the dependent variable with respect to each explanatory variable can be tested without any a priorirestrictions the test is not biased by conditional correlations of other variables included in the model the empirical demonstration within the var framework is based on a set of variables obtained by solving a macroeconomic model

interaction between stock markets an analysis of the common trading hours at the london and new york stock exchange abstract this paper examines the spill overs in both returns and volatility between the london and new york stock markets during overlapping trading hours using high frequency data for the ftse and s p stock index futures we estimate the seasonal patterns in volatility using a flexible fourier form specification the estimated seasonals are used to adjust the returns before conducting the lead lag analysis the results indicate that both markets influence each other although the impact of the usa on the uk is clearly stronger

taxation with costly administration the concept of a tax technology is used here as providing a unified framework for analyzing both administrative activity by tax authorities and tax resisting activity by taxpayers this framework provides a simple formalization of adam smith s four components of tax costs administration substitution active noncompliance and passive compliance the model is used to derive policy implications concerning the proper measurement of the cost of public funds and concerning the criterion for optimal administration

taxation and the structure of labor markets the case of corporatism we propose an explanation for the wide variation in rates of taxation across developed economies based on differences in labor market institutions in corporatist economies which feature centralized labor markets taxes on labor input will be less distortionary than when labor supply is determined individually since the level of labor supply is set by a small group of decision makers these individuals will recognize the linkage between the taxes that workers pay and the benefits that they receive labor tax burdens are indeed higher in more corporatist nations while nonlabor taxes are actually lower there is also some evidence that the distortionary effects of labor taxes are lower in more corporatist economies

economists and the welfare state abstract this paper constrasts the views of the welfare state of economists in the 1940s and 1950s with those of the current generation it is argued that economists as a profession in particular in the scandinavian countries have changed from being strong spokesmen for the welfare state to becoming much more critical the reasons for this are sought both in the expansion of the public sector in recent decades and in the development of economic theory in the areas of public finance insurance and incentives and public choice an attempt is made to evaluate the importance of the empirical and theoretical developments for the changing views of the welfare state

the effect of taxes on male and female labor supply in sweden this paper estimates labor supply functions for married men and women in sweden using data from 1980 taking account of the complete form of individuals budget constraints both linear and quadratic supply functions are estimated with and without random preferences a novel feature is that for women the wage rate and labor supply functions are estimated simultaneously using a full information maximum likelihood method this method yields substantially larger wage and income elasticities than does the previously used two step methods another result is that the quadratic supply function wage elasticities for men and women are virtually the same if the elasticities are evaluated at the same net wage rate and hours of work for men and women the estimated functions are used to calculate the effect of tax reforms

government deficits and money growth additional empirical evidence is provided concerning the impact of government financing decisions on monetary expansion in the united states for the post world war ii period the budget position of the fiscal authority and the rate of money growth set by the fed are specified as endogenous variables within a system of equations the empirical analysis generates evidence of a policy shift in the 1980s with budget deficits exerting no independent influence on high powered money growth prior to 1981 while after 1981 such a linkage is found to exist copyright 1990 by mit press

on income tax avoidance the case of germany abstract we present a micro estimate determining taxed income as a function of gross income and all major deduction options depending on household and asset categories it shows that tax savings strongly increase with increasing income resulting in an effective marginal tax rate 16 percentage points below the legislated one for the highest income groups this calls into question the intended distributional impact of progressive income taxation our estimate suggests aggregate income tax losses to the german fiscal authorities in the order of magnitude of 34 of wage and income taxes paid in 1983 relative to 1994 tax proceeds this percentage would amount to dm 105 b

the monetarist versus the neo keynesian views on inflation abstract this empirical inquiry investigates the relative merits of the monetarist and the neo keynesian hypotheses regarding the behavior of inflation in the italian economy over the 1955 1983 period based on testing three alternative dynamic models that have been proposed in the literature the empirical results support the monetarist proposition that unemployment has an insignificant impact upon inflation a finding that is at odds with the neo keynesian hypothesis indeed consistent with the monetarist hypothesis the results suggest that the rate of monetary expansion is a prime determinant of the rate of inflation and its acceleration in italy

tax progressivity income distribution and tax non compliance this article examines the determinants of tax non compliance when we recognise the existence of an imperfectly competitive tax advice industry supplying schemes which help taxpayers reduce their tax liability we apply a traditional industrial organisation framework to model the behaviour of this industry this tells us that an important factor determining the equilibrium price and hence the level of noncompliance is the convexity of the demand schedule we show that in this context this convexity is affected by the distribution of pre tax income the progressivity of the tax schedule and the way in which monitoring and penalties vary with income it is shown that lower pre tax income inequality as well as a less progressive tax code may cause more tax minimisation activities therefore the frequently advocated policy of reducing the highest tax rate may fail as a policy directed at improving tax discipline one way of offsetting the possible harm to tax compliance from a less progressive tax could be an adjustment of the penalty and monitoring functions

further evidence on alternative theories of inflation and unemployment the scandination countries the objective of this study is to estimate the inflation and unemployment models of various of macroeconomics as suggested by sargent stein and rea and to test the validity of their propositions using the data of four scandinavian countries namely denmark finland norway and sweden the results provide some support for the new classical models on unemployment but the monetory variables as monetarists argue have a significant effect on unemployment with regard to inflation the data of the scandinavian countries do not support the monetarist proposition that inflation is always and everywhere a monetary phenomenon however the results support keynesian propositions that economic slack represented by unemployment is important in explaining the rate of inflation

the effect of marginal tax rates on taxable income a panel study of the 1986 tax reform act this paper uses a treasury department panel of more than 4 000 taxpayers to estimate the sensitivity of taxable income to changes in tax rates on the basis of a comparison of the tax returns of the same individual taxpayers before and after the 1986 tax reform the analysis emphasizes that the response of taxable income involves much more than a change in the traditional measures of labor supply the evidence shows an elasticity of taxable income with respect to the marginal net of tax rate that is at least one and could be substantially higher the implications for recent tax rate changes are discussed

monetarism and the aggregate economy some longer run evidence a simple macro model is used to investigate various monetarist propositions over the period 1923 82 initial tests indicate a structural break over this period and the subperiods 1923 60 and 1961 82 are analyzed separately results obtained for the latter period support the monetarist propositions put forward by stein and others however upon closer investigation it appears that the crucial long run neutrality that characterizes these findings is essentially generated by government policy and is not necessarily an intrinsic property of the economy over that period by contrast results obtained for the period 1923 60 are much less supportive of these same propositions

marginal taxes and the asset portfolios of swedish households this paper focuses on the effects of marginal tax rates wealth income and a set of socioeconomic and demographic variables on the portfolio composition of households using detailed micro data on 2 000 swedish households in particular efforts are made to disentangle the effects of marginal tax rates on the portfolio behavior of households some econometric problems involved when estimating asset demand equations in the presence of incomplete portfolios are briefly discussed a final section examines the overall effect of marginal tax rates on asset demands by applying estimated discrete and continuous portfolio equations to compute different tax elasticities

forecasting eur usd implied volatility the case of intraday data abstract this study models and forecasts the evolution of intraday implied volatility on an underlying eur usd exchange rate for a number of maturities to our knowledge we are the first to employ high frequency data in this context this allows the construction of forecasting models that can attempt to exploit intraday seasonalities such as overnight effects results show that implied volatility is predictable at shorter horizons within a given day and across the term structure moreover at the conventional daily frequency intraday seasonality effects can be used to augment the forecasting power of models the type of inefficiency revealed suggests potentially profitable trading models

tax arbitrage and labor supply we examine how tax avoidance in the form of trade in well functioning asset markets affects the basic labor supply model we show that tax arbitrage has dramatic implications for positive normative and econometric analysis of how taxes affect work incentives

tax arbitrage and the redistributive properties of progressive income taxation abstract contrary to the popular view this paper shows that tax arbitrage may reduce inequality we also show that tax arbitrage is likely to benefit individuals located at the tails of the income distribution at the expense of those located at the center

money inflation and casuality another look at the empirical evidence for the usa 1953 84 this paper addresses the issue of the existence of a causal relationship between inflation i e change in the price level and change in the money supply three different causality tests are discussed and implemented for two separate time periods the results are mixed and somewhat difficult to interpret on intuitive grounds while a causal relationship is found to exist between changes in the consumer price index and changes in the narrowly defined money supply there is no relationship indentifiable between the other price and money supply data series used given this result one can see why different results are frequently obtained the different researchers focusing on the question of a relationship between the supply of money and prices finally the results of a previous paper by feige and pearce are called into question as the result of a serious misspecification

the effect of income taxation on labor supply when deductions are endogenous this paper extends the standard static model of labor supply and taxation to the case where people are able to legally avoid taxes through the use of itemized deductions tax deductible expenditures are treated as a hicksian composite good with a price for those who decide to itemize proportional to one minus the marginal tax rate estimation of the commonly used linear labor supply model extended to incorporate the additional composite good on a cross section of prime aged married men suggests that tax deductible consumption is an uncompensated substitute for leisure and complement with labor the impact of taxes through the relative price of deductible expenditures appears to be much stronger than through the net wage copyright 1992 by mit press

the relation between price changes and trading volume a survey this paper reviews previous and current research on the relation between price changes and trading volume in financial markets and makes four contributions first two empiri cal relations are established volume is positively related to the magnitude of the price change and in equity markets to the price change per se second previous theoretical research on the price volume relation is summarized and critiqued and major insights are emphasized third a simple model ofthe price volume relation is proposed that is consis tent with several seemingly unrelated or contradictory observations and fourth several directions for future research are identified

intra day futures price volatility information effects and variance persistence this paper was prepared for presentation at the conference on nonlinear dynamics and econometrics ucla 5 6 april 1991 under the title information and chronological time effects in intra day futures price volatility the authors are grateful to participants of the nonlinear dynamics conference and to leigh riddick george wang and two anonymous referees for helpful comments the bds program was provided by w d dechert and the bispec program was provided by doug patterson the views stated within are those of the authors and do not necessarily reflect those of the commodity futures trading commission or its staff this paper examines the role of the rate of information arrival proxy variables as they relate to persistence in the variance structure of minute by minute s p 500 index futures returns series the role of contract volume floor transactions the number of price changes executed order imbalance and an information composite in reducing variance persistence is examined all proxy variables are found to explain a significant amount of returns variance while the characteristics of returns data vary daily some evidence of remaining variance persistence is found regardless of the definition of the rate of information arrival variable our results suggest that utilization of a pure arch type model for highfrequency returns data implies a mis specification

income tax evasion labour supply and the equity efficiency tradeoff abstract this paper is an attempt to incorporate tax evasion into the analysis of optimum income taxation a model of variable labour supply with tax evasion is used to derive supply functions for labour in regular and irregular markets given taxpayer behaviour the government chooses tax rates penalties and the probability of detection to maximize a utilitarian social welfare function the results consist in the derivation of a formula for the optimum marginal tax rate and a characterization of the factors determining the choice between the penalty rate and the probability of detection as instruments for the control of tax evasion

measuring business cycle time the business cycle analysis of arthur f burns and wesley c mitchell and the national bureau of economic research presumed that aggregate economic variables evolve on a time scale defined by business cycle turning points rather than by months or quarters do macroeconomic variables appear to evolve on an economic rather than a calendar time scale evidence presented here suggests that they do however the estimated economic time scales are only weakly related to business cycle time scales providing evidence against the view underlying traditional business cycle analysis copyright 1987 by university of chicago press

the policy ineffectiveness proposition some further tests abstract this study investigates for denmark the relative merits of the new classical versus the monetarist hypotheses regarding the role of monetary policy in stabilizing real economic activity the results do not reject the monetarist contention that anticipated systematic monetary policy has a significant effect on real output in the short run a finding that is inconsistent with the new classical policy ineffectiveness proposition

money prices and causality monetarist versus structuralist explanations using pooled country evidence the direction of causality between changes in money supply and aggregate prices has long been a matter of controversy between structuralists and monetarists this paper addresses deficiencies in this literature in three ways first a large sample of countries with alternate measures of money and price variables is used to evaluate the evidence on money inflation and causality second combined data are tested for causality with the combinations based on variables suggested by the literature level of per capita income magnitude of inflation degree of financial market development and independence of the central bank finally because the choice of lag length is often arbitrary results are generated with varying lags and consistency across different lag periods looked for two presentation methods are developed categorical and graphical evidence of structural inflation was found only in chile and sri lanka evidence of money supply exogeneity on the other hand was found to be strongest in kuwait

alternative modes of deficit financing and endogneous monetary and fiscal policy in the u s a 1923 1982 this paper first investigates the effects of alternative modes of deficit financing on the unemployment rate the inflation rate and the real interest rate within the framework of a small complete macroeconomic model secondly it examines the nature of monetary and fiscal reaction functions the two periods 1923 1960 and 1961 1982 are considered with substantial differences in behaviour and policy being shown to exist between them the most important conclusion is that long run monetary neutrality properties shown to exist over the latter period are not intrinsic to the u s economy but rather are the result of the stabilization policies being conducted over that period

the political economics of not paying taxes this paper considers redistributive as well as political consequences of tax avoidance when tax avoidance is possible the official tax rate does not necessarily correspond to what individuals actually pay this affects both redistributive outcomes as well as political attitudes towards taxation depending on the avoidance technology different political equilibria emerge when the avoidance possibilities are limited the classical conflict between rich and poor is sustained if the tax avoidance technology is more effective however the equilibrium outcome can change to a situation where a coalition of poor and the very richest favor a higher tax rate comparing the model predictions with data on income inequality and evidence of avoidance activity it comes surprisingly close to actual observations

the price variability volume relationship on speculative markets this paper concerns the relationship between the variability of the daily price change and the daily volume of trading on the speculative markets our work extends the theory of speculative markets in two ways first we derive from economic theory the joint probability distribution of the price change and the trading volume over any interval of time within the trading day and second we determine how this joint distribution changes as more traders enter or exit from the market the model s parameters are estimated by fiml using daily data from the 90 day t bills futures market the results of the estimation can reconcile a conflict between the price variability volume relationship for this market and the relationship obtained by previous investigators for other speculative markets this paper concerns the relationship between the variability of the daily price change and the volume of trading on speculative markets previous empirical studies 2 3 6 12 14 16 of both futures and equity markets always find a positive association between price variability as measured by the squared price change ap2 and the trading volume 2 there are two explanations for the relationship clark s 2 explanation which is secondary to his effort to explain why the probability distribution of the daily price change is leptokurtic emphasizes randomness in the number of within day transactions in clark s model the daily price change is the sum of a random number of within day price changes the variance of the daily price change is thus a random variable with a mean proportional to the mean number of daily transactions clark argues that the trading volume is related positively to the number of within day transactions and so the trading volume is related positively to the variability of the price change the second explanation is due to epps and epps 6 their model examines the mechanics of within day trading the change in the market price on each within day transaction or market clearing is the average of the changes in all of the traders reservation prices epps and epps assume there is a positive relationship between the extent to which traders disagree when they revise their reservation prices and the absolute value of the change in the market price that is an increase in the extent to which traders disagree is associated with a larger absolute price change the price variability volume relationship arises then because the volume of trading is positively related to the extent to which traders disagree when they revise their reservation prices

heteroskedasticity in stock return data volume versus garch effects this paper provides empirical support for the notion that autoregressive conditional heterqskedasticity arch in daily stock return data reflects time dependence in the process generating information flow to the market daily trading volume used as a proxy for information arrival time is shown to have significant explanatory power regarding the variance of daily returns which is an implication of the assumption that daily returns are subordinated to intraday equilibrium returns furthermore arch effects tend to disappear when volume is included in the variance equation the autoregressive conditiqnal heteroskedasticity arch process of engle 1982 has been shown to provide a good fit for many financial return time series 1 arch imposes an autoregressive structure on conditional variance allqwing volatility shocks to persist over time this persistence captures the propensity of returns of like magnitude to clu ter in time and can explain the well documented nonnormality and nonstability of empirical asset return distributions see especially fama 1965 an appealing explanation for the presence of arch is based upon the hypothesis that daily returns are generated by a maiture of distributions in which the rate of daily information arrival is the stochastic mixing variable as suggested by diebold 1986 gallant hsieh and tauchen 1988 and stock 1987 1988 arch might capture the time series properties e g serial correlation of this mixing variable hqwever this linkage has not been broadly documented with the datia the objective of this study is to examine the validity of this explanation for daily stock returns the empirical strategy exploits the implication of the mixture model that the variance of daily price increments is heteroskedastic specifically positively related to the rate of daily information arrival using daily trading volume as a proxy for the mixing variable we show that for a sample of 20 common stocks arch effects vanish when volume is included as an explanatory variable in the conditional variance equation

unemployment inflation and monetarism the council s report provides a look at the 1969 71 game plan to disinflate by means of retarding aggregate demand the president elect s task force on inflation recommended as a first interim step that aggregate demand be slowed so as to bring the unemployment rate back to some equilibrium region around 4 5 percent what happened was that under the cover of the expectation and acceptance of such a limited step towards re equilibration the administration gradually tightened monetary and fiscal policy so severely as gradually to send the unemployment rate whizzing past the equilibrium zone to around 6 percent to my knowledge the theory of how and how well this medicine would act to cure the patient of his inflation was never spelled out by the council of economic advisers pp 533 34