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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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Cited by:
  1. 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.
  2. 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.

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