Inflation in Open Economies: Supply-Determined Versus Demand-Determined Models

During the last few years there has been a gradual shift from emphasis on aggregate demand policy to emphasis on supply or cost factors as a determinant of the rate of inflation in the Scandinavian countries. This shift seems to have been accelerated by publication by Aukrust [1], [2] for Norway and Edgren, Faxen and Odhner [5], [6] of an analysis of inflation, sometimes called the “EFO model” in Sweden, that makes the rate of inflation “structurally determined” from the supply side of the economy. This view is now drawing international attention, as evidenced by the citations noted in section II below.