 ne
effect on the relative rates of return that is being ignored has to do with
the price rule. If the Fed remains on a price rule, the recent rise in oil
prices will not have a lasting effect on domestic prices. The one implication
of the price rule is that the rise in oil prices will produce disinflationary
pressures on the non-energy sectors of the economy. The disinflation will
be the result of the price rule and the change in relative prices brought
about by the rise in oil prices. The relative rates of returns of the energy
and non-energy sectors of the economy will reflect these disinflationary
pressures. The disinflationary pressure will be reflected as a lack of pricing
power in the non-oil sector of the economy. |