Lucas,RobertE., Jr.1973."Some International Evidenceon Output-Inflation
Tradeoffs." AmericanEconomicReview,63(3): 326-34.
Thisarticleintroduces atight butstylizedmodelinwhichmarket participants must
makedecisionswithout knowingwhether localchangesinpricesignalchangesin
relative priceormerelyreflect changesinthegeneralpricelevel;theydo,however,
knowthestatistical properties ofbothprocesses.Fromthisbasisemergesa naturalratemodelinwhichtheratioofreal-output changetoprice-level changeinresponse
to
exogenousshiftsinaggregatexpenditure dependson therelativevarianceof
those
processes.Time-series cross-section datafora numberofcountries provide
someweakevidenceconsistent withthebasicconclusion. Theunderlying assumptionhas
goneoutoffavor, butthemodelingtechnique hasbeenveryinfluential.