Second-round Effect

A second-round effect means when trade unions decide to raise wages after commodity prices (e.g. energy, food) have increased sharply. This leads to a high inflation, so the central bank has to raise interest rates.

Robert J. Gordon describes the second-round effect as the built-in inflation in his triangle model. As a result of past inflation, the second-round effect creates inflation ripples in the economy.

Famous quotes containing the word effect:

    Nothing could his enemies do but it rebounded to his infinite advantage,—that is, to the advantage of his cause.... No theatrical manager could have arranged things so wisely to give effect to his behavior and words. And who, think you, was the manager? Who placed the slave-woman and her child, whom he stooped to kiss for a symbol, between his prison and the gallows?
    Henry David Thoreau (1817–1862)