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Political Pressures on Monetary Policy during the US Great Inflation

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  • Charles L. Weise

Abstract

Drawing on an analysis of Federal Open Market Committee (FOMC) documents, this paper argues that political pressures on the Federal Reserve were an important contributor to the rise in inflation in the United States in the 1970s. Members of the FOMC understood that a serious attempt to tackle inflation would generate opposition from Congress and the executive branch. Political considerations contributed to delays in monetary tightening, insufficiently aggressive anti-inflation policies, and the premature abandonment of attempts at disinflation. Empirical analysis verifies that references to the political environment at FOMC meetings are correlated with the stance of monetary policy during this period. (JEL D72, E32, E52, E58, N12)

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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Journal: Macroeconomics.

Volume (Year): 4 (2012)
Issue (Month): 2 (April)
Pages: 33-64

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Handle: RePEc:aea:aejmac:v:4:y:2012:i:2:p:33-64

Note: DOI: 10.1257/mac.4.2.33
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  1. Nelson, Edward, 2007. "The Great Inflation and Early Disinflation in Japan and Germany," CEPR Discussion Papers, C.E.P.R. Discussion Papers 6156, C.E.P.R. Discussion Papers.
  2. Clarida, R. & Gali, J. & Gertler, M., 1998. "Monetary Policy Rules and Macroeconomic Stability: Evidence and some Theory," Working Papers, C.V. Starr Center for Applied Economics, New York University 98-01, C.V. Starr Center for Applied Economics, New York University.
  3. Orphanides, Athanasios, 2004. "Monetary Policy Rules, Macroeconomic Stability, and Inflation: A View from the Trenches," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 36(2), pages 151-75, April.
  4. Riccardo DiCecio & Edward Nelson, 2009. "The great inflation in the United States and the United Kingdom: reconciling policy decisions and data outcomes," Working Papers, Federal Reserve Bank of St. Louis 2009-015, Federal Reserve Bank of St. Louis.
  5. Orphanides, Athanasios, 2003. "Historical monetary policy analysis and the Taylor rule," Journal of Monetary Economics, Elsevier, Elsevier, vol. 50(5), pages 983-1022, July.
  6. Charles L. Weise, 2008. "Private Sector Influences on Monetary Policy in the United States," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 40(2-3), pages 449-462, 03.
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Cited by:
  1. Joshua C C Chan & Gary Koop & Simon M Potter, 2012. "A Bounded Model of Time Variation in Trend Inflation, NAIRU and the Phillips Curve," ANU Working Papers in Economics and Econometrics, Australian National University, College of Business and Economics, School of Economics 2012-590, Australian National University, College of Business and Economics, School of Economics.
  2. Francesco Bianchi & Cosmin Ilut, 2014. "Monetary/Fiscal Policy Mix and Agents' Beliefs," NBER Working Papers 20194, National Bureau of Economic Research, Inc.
  3. Julio J. Rotemberg, 2013. "Shifts in US Federal Reserve Goals and Tactics for Monetary Policy: A Role for Penitence?," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 27(4), pages 65-86, Fall.

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