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The great inflation and early disinflation in Japan and Germany

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  • Edward Nelson

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 greater 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. Likewise their higher inflation in the first half of the 1970s is attributable to the fact that their policymakers over this period embraced nonmonetary theories of inflation.

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Bibliographic Info

Paper provided by Federal Reserve Bank of St. Louis in its series Working Papers with number 2006-052.

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Date of creation: 2007
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Publication status: Published in International Journal of Central Banking, December 2007, 3(4), pp. 23-76
Handle: RePEc:fip:fedlwp:2006-052

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Keywords: Inflation (Finance) ; Economic conditions - Japan ; Economic conditions - Germany;

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  1. 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.
  2. Athanasios Orphanides & John C. Williams, 2006. "Inflation Targeting under Imperfect Knowledge," Computing in Economics and Finance 2006 38, Society for Computational Economics.
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  4. Giannoni, Marc P., 2002. "Does Model Uncertainty Justify Caution? Robust Optimal Monetary Policy In A Forward-Looking Model," Macroeconomic Dynamics, Cambridge University Press, vol. 6(01), pages 111-144, February.
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  7. Christina Gerberding & Franz Seitz & Andreas Worms, 2005. "How the Bundesbank really conducted monetary policy," Computing in Economics and Finance 2005 60, Society for Computational Economics.
  8. Richard H. Clarida & Mark Gertler, 1997. "How the Bundesbank Conducts Monetary Policy," NBER Chapters, in: Reducing Inflation: Motivation and Strategy, pages 363-412 National Bureau of Economic Research, Inc.
  9. Franz, Wolfgang & Gordon, Robert J., 1993. "German and American wage and price dynamics : Differences and common themes," European Economic Review, Elsevier, vol. 37(4), pages 719-754, May.
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  13. Orphanides, Athanasios, 1999. "The Quest for Prosperity Without Inflation," Working Paper Series 93, Sveriges Riksbank (Central Bank of Sweden).
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  17. Laurence Ball, 1994. "What Determines the Sacrifice Ratio?," NBER Chapters, in: Monetary Policy, pages 155-193 National Bureau of Economic Research, Inc.
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  21. Nelson Edward, 2005. "The Great Inflation of the Seventies: What Really Happened?," The B.E. Journal of Macroeconomics, De Gruyter, vol. 5(1), pages 1-50, July.
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  24. Thomas M. Humphrey, 1985. "The early history of the Phillips curve," Economic Review, Federal Reserve Bank of Richmond, issue Sep, pages 17-24.
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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. Andreas Beyer & Vitor Gaspar & Christina Gerberding & Otmar Issing, 2008. "Opting Out of the Great Inflation: German Monetary Policy After the Break Down of Bretton Woods," NBER Working Papers 14596, National Bureau of Economic Research, Inc.

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