Comments and Discussion.

This article presents commentaries on the paper presented by James Pierce and Jared Enzler at the thirteenth conference of the Brooking Panel on Economic Activity, which analyzes the way external shocks may impart inflationary spurts to the economy. According to David I. Fand, the paper introduced a money demand function that is designed to pick up any increase in money demand resulting from a rise in transactions associated with the higher import prices. Since import prices have risen by as much as 10 percent in recent quarters, the demand for nominal money should have increased significantly. Fand believed that this change in money demand may be viewed either as a sort of real-balance effect or as a transaction effect. On the other hand, R. J. Gordon described the paper as very timely and important one. However, he wants to question some of their specific quantitative findings and focus on certain aspects of the model they used which he thinks could be improved. For example, the effects of a one time increase in the price level without any accommodative response from the Fed, that is, the growth of the money supply remains unchanged. The initial effect is an upsurge of both inflation and unemployment, which seems entirely reasonable. And, since this is a model with a natural unemployment rate, in the long run the economy eventually returns to the unemployment and inflation rates that would have prevailed had the initial jump in the price level not occurred.