RESALE OF GOODS UNDER REPRESSED INFLATION - IMPLICATIONS FOR SUPPLY MULTIPLIERS

The possibility of goods resale by households is introduced into the Barro-Grossman repressed inflation model. Goods are allocated to households via official channels at a price fixed below the market-clearing level; but households then trade with one another in the second economy, where price is market clearing. This has significant implications for supply multipliers. Under relatively mild assumption an increase in the quota of goods taken by the government is found to cause output to increase. The effects of changing the official price of goods, the wage rate, and initial holdings of money by households are also considered. © 1990.