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How Would Have Monetary Policy During the Great Inflation Differed, if it Had Been Conducted in the Styles of Volcker and Greenspan and with Perfect Foresight?

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  • Alex Cukierman

    (Berglas School of Econonics,Tel-Aviv University and CEPR)

Abstract

Using nonlinear monetary policy rules estimated under Martin, Burns/Miller, Volcker and Greenspan chairmanships this paper evaluates quantitatively how monetary policy under Burns/Miller would have differed, if it had been conducted by means of the policy rules found for each of the other three chairs. The main results are that if policy had been conducted by means of a Volcker-type rule, it would have been uniformly more restrictive; and if it had been conducted by means of a Greenspan-type rule, it would have been less restrictive. These results are robust to the introduction of real-time data. The paper also evaluates the impact of inflation uncertainty on monetary policy. Real-time Greenbook inflation forecasts reveal that, during the great inflation period, the Fed's staff believed that monetary policy was more restrictive than it turned out to be with the benefit of hindsight. The opposite happened during inflation stabilization under Volcker.

Suggested Citation

  • Alex Cukierman, 2010. "How Would Have Monetary Policy During the Great Inflation Differed, if it Had Been Conducted in the Styles of Volcker and Greenspan and with Perfect Foresight?," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 52(2), pages 159-179, June.
    • Handle: RePEc:pal:compes:v:52:y:2010:i:2:p:159-179
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    Cited by:

    1. Cukierman, Alex, 2019. "Implications of the permanent-transitory confusion for New-Keynesian modeling, inflation forecasts and the post-crisis era," CEPR Discussion Papers 13727, C.E.P.R. Discussion Papers.
    2. Cukierman, Alex & Melnick, Rafi, 2015. "The Conquest of Israeli Inflation and Current Policy Dilemmas," CEPR Discussion Papers 10955, C.E.P.R. Discussion Papers.

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