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The Great Inflation and Early Disinflation in Japan and Germany

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  • Nelson, Edward

Abstract

This paper considers the Great Inflation of the 1970s in Japan and Germany. From 1975 onward these countries had low inflation relative to other large economies. Traditionally, this success is attributed to stronger discipline on the part of Japan and Germany’s monetary authorities - for example, more willingness to accept temporary unemployment, or stronger determination not to monetize government deficits. I instead attribute the success of these countries from the mid-1970s to their governments’ and monetary authorities’ acceptance that inflation is a monetary phenomenon. Their higher inflation in the first half of the 1970s is attributable to the fact that their policymakers over this period embraced non-monetary theories of inflation.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 6156.

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Date of creation: Mar 2007
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Handle: RePEc:cpr:ceprdp:6156

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Keywords: Germany; Great Inflation; incomes policy; Japan; monetary targeting;

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References

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  1. Franz, Wolfgang & Gordon, Robert J, 1993. "German and American Wage and Price Dynamics: Differences and Common Themes," CEPR Discussion Papers 777, C.E.P.R. Discussion Papers.
  2. Christina D. Romer, 2005. "Commentary on "Origins of the Great Inflation"," Review, Federal Reserve Bank of St. Louis, issue Mar, pages 177-186.
  3. Orphanides, Athanasios, 2000. "The quest for prosperity without inflation," Working Paper Series 0015, European Central Bank.
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  6. Athanasios Orphanides & John C. Williams, 2006. "Inflation targeting under imperfect knowledge," Finance and Economics Discussion Series 2006-20, Board of Governors of the Federal Reserve System (U.S.).
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  8. Issing, Otmar, 1997. "Monetary targeting in Germany: The stability of monetary policy and of the monetary system," Journal of Monetary Economics, Elsevier, vol. 39(1), pages 67-79, June.
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  15. Taylor, John B., 1989. "Differences in economic fluctuations in Japan and the United States: The role of nominal rigidities," Journal of the Japanese and International Economies, Elsevier, vol. 3(2), pages 127-144, June.
  16. Gerberding, Christina & Seitz, Franz & Worms, Andreas, 2005. "How the Bundesbank really conducted monetary policy," The North American Journal of Economics and Finance, Elsevier, vol. 16(3), pages 277-292, December.
  17. Christina D. Romer & David H. Romer, 2002. "The Evolution of Economic Understanding and Postwar Stabilization Policy," NBER Working Papers 9274, National Bureau of Economic Research, Inc.
  18. Otmar Issing, 2005. "Why did the Great Inflation not happen in Germany?," Review, Federal Reserve Bank of St. Louis, issue Mar, pages 329-336.
  19. Coenen, Günter & Levin, Andrew T., 2004. "Identifying the influences of nominal and real rigidities in aggregate price-setting behavior," Working Paper Series 0418, European Central Bank.
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  22. Richard Clarida & Mark Gertler, 1996. "How the Bundesbank Conducts Monetary Policy," NBER Working Papers 5581, National Bureau of Economic Research, Inc.
  23. Edward Nelson, 2004. "The Great Inflation of the seventies: what really happened?," Working Papers 2004-001, Federal Reserve Bank of St. Louis.
  24. Franz, Wolfgang & Gordon, Robert J., 1993. "German and American wage and price dynamics: Differences and common themes," Discussion Papers 2, University of Konstanz, Center for International Labor Economics (CILE).
  25. Taylor, John B, 1980. "Aggregate Dynamics and Staggered Contracts," Journal of Political Economy, University of Chicago Press, vol. 88(1), pages 1-23, February.
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Cited by:
  1. Charles L. Weise, 2012. "Political Pressures on Monetary Policy during the US Great Inflation," American Economic Journal: Macroeconomics, American Economic Association, vol. 4(2), pages 33-64, April.
  2. Beyer, Andreas & Gaspar, Vítor & Gerberding, Christina & Issing, Otmar, 2009. "Opting out of the Great Inflation: German monetary policy after the break down of Bretton Woods," Working Paper Series 1020, European Central Bank.

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