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Origins of the Great Inflation

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Author Info
Allan H. Meltzer

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Abstract

The Great Inflation from 1965 to 1984 is the climactic monetary event of the last part of the 20th century. This paper analyzes why it started and why it continued for many years. Like others, it attributes the start of inflation to analytic errors, particularly the widespread acceptance of the simple Keynesian model with its implication that monetary and fiscal policy should be coordinated. In practice, that meant that the Federal Reserve financed a large part of the fiscal deficit. This paper gives a large role to political decisionmaking. Continuation of inflation depended on political choices, analytic errors, and the entrenched belief that inflation would continue.

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Article provided by Federal Reserve Bank of St. Louis in its journal Review.

Volume (Year): (2005)
Issue (Month): Mar ()
Pages: 145-176
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Handle: RePEc:fip:fedlrv:y:2005:i:mar:p:145-176:n:v.87no.2,pt.2

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Related research
Keywords: Inflation (Finance) ; Economic history ; Monetary policy;

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Barro, Robert J & Gordon, David B, 1983. "A Positive Theory of Monetary Policy in a Natural Rate Model," Journal of Political Economy, University of Chicago Press, vol. 91(4), pages 589-610, August. [Downloadable!] (restricted)
    Other versions:
  2. Bordo, Michael D. & Schwartz, Anna J., 1999. "Monetary policy regimes and economic performance: The historical record," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 3, pages 149-234 Elsevier. [Downloadable!] (restricted)
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  3. Richard G. Anderson & Robert H. Rasche, 1999. "Eighty years of observations on the adjusted monetary base: 1918-1997," Review, Federal Reserve Bank of St. Louis, issue Jan, pages 3-22. [Downloadable!]
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Taiji Harashima, 2005. "The Cause of the Great Inflation: Interactions between the Government and the Monetary Policymakers," Macroeconomics 0510026, EconWPA, revised 31 Oct 2005. [Downloadable!]
  2. Sharon Kozicki & P.A. Tinsley, 2007. "Perhaps the FOMC Did What It Said It Did: An Alternative Interpretation of the Great Inflation," Working Papers 07-19, Bank of Canada. [Downloadable!]
    Other versions:
  3. Steinar Holden & Fredrik Wulfsberg, 2009. "Wage Rigidity, Institutions, and Inflation," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
  4. Brian Snowdon, 2007. "The New Classical Counter-Revolution: False Path or Illuminating Complement?," Eastern Economic Journal, Eastern Economic Association, vol. 33(4), pages 541-562, Fall. [Downloadable!]
  5. Weise, Charles L, 2008. "Political constraints on monetary policy during the Great Inflation," MPRA Paper 8694, University Library of Munich, Germany. [Downloadable!]
  6. Weise, Charles L., 2009. "Political Constraints on Monetary Policy During the U.S. Great Inflation," MPRA Paper 18700, University Library of Munich, Germany. [Downloadable!]
  7. Peter M. Summers, 2005. "What caused the Great Moderation? : some cross-country evidence," Economic Review, Federal Reserve Bank of Kansas City, issue Q III, pages 5-32. [Downloadable!]
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