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Why was the Fed so Inflationary in the 1960s and 1970s?

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  • Thomas Mayer

    (Department of Economics, University of California Davis)

Abstract

Why was the Fed so inflationary in 1965-79? No single explanation suffices. Forecast errors and poor operating procedures played at most a minor role. Unwillingness to accept greater interest-rate variation and cognitive errors played a greater role. Political pressures also played a role, but, given its desired policy the Fed was not greatly constrained by them. Wage and price controls played an uncertain role. The most important factor was the prevailing intellectual atmosphere with its de-emphasis on the costs of inflation, its faith in the viability of an inflation/unemployment trade-off and concern with cost-push elements.

Suggested Citation

  • Thomas Mayer, 2003. "Why was the Fed so Inflationary in the 1960s and 1970s?," Working Papers 32, University of California, Davis, Department of Economics.
    • Handle: RePEc:cda:wpaper:32
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    References listed on IDEAS

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    1. Brimmer, Andrew F, 1972. "The Political Economy of Money: Evolution and Impact of Monetarism in the Federal Reserve System," American Economic Review, American Economic Association, vol. 62(2), pages 344-352, May.
    2. Kearl, J R, et al, 1979. "A Confusion of Economists?," American Economic Review, American Economic Association, vol. 69(2), pages 28-37, May.
    3. Boschen, John F & Mills, Leonard O, 1995. "The Relation between Narrative and Money Market Indicators of Monetary Policy," Economic Inquiry, Western Economic Association International, vol. 33(1), pages 24-44, January.
    4. Weintraub, Robert E., 1978. "Congressional supervision of monetary policy," Journal of Monetary Economics, Elsevier, vol. 4(2), pages 341-362, April.
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