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The Great Inflation in the United States and the United Kingdom: Reconciling Policy Decisions and Data Outcomes

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  • Riccardo DiCecio
  • Edward Nelson

Abstract

We argue that the Great Inflation experienced by both the United Kingdom and the United States in the 1970s has an explanation valid for both countries. The explanation does not appeal to common shocks or to exchange rate linkages, but to the common doctrine underlying the systematic monetary policy choices in each country. The nonmonetary approach to inflation control that was already influential in the United Kingdom came to be adopted by the United States during the 1970s. We document our position by examining official policymaking doctrine in the United Kingdom and the United States in the 1970s, and by considering results from a structural macroeconomic model estimated using U.K. data.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 14895.

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Date of creation: Apr 2009
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Publication status: published as The Great Inflation in the United States and the United Kingdom: Reconciling Policy Decisions and Data Outcomes , Riccardo DiCecio, Edward Nelson. in The Great Inflation: The Rebirth of Modern Central Banking , Bordo and Orphanides. 2013
Handle: RePEc:nbr:nberwo:14895

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  4. Orphanides, Athanasios, 2003. "The quest for prosperity without inflation," Journal of Monetary Economics, Elsevier, vol. 50(3), pages 633-663, April.
  5. Riccardo DiCecio & Edward Nelson, 2007. "An estimated DSGE model for the United Kingdom," Working Papers 2007-006, Federal Reserve Bank of St. Louis.
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  8. Michael D. Bordo & Barry Eichengreen, 2008. "Bretton Woods and the Great Inflation," NBER Working Papers 14532, National Bureau of Economic Research, Inc.
  9. 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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Cited by:
  1. Edward Nelson, 2012. "A Review of Allan Meltzer’s A History of the Federal Reserve, Volume 2," International Journal of Central Banking, International Journal of Central Banking, International Journal of Central Banking, vol. 8(2), pages 241-266, June.
  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.
  3. Hendrickson, Joshua R., 2012. "An overhaul of Federal Reserve doctrine: Nominal income and the Great Moderation," Journal of Macroeconomics, Elsevier, vol. 34(2), pages 304-317.
  4. Hendrickson, Joshua, 2010. "An Overhaul of Fed Doctrine: Nominal Income and the Great Moderation," MPRA Paper 20346, University Library of Munich, Germany.
  5. Julio J. Rotemberg, 2013. "Shifts in US Federal Reserve Goals and Tactics for Monetary Policy: A Role for Penitence?," Journal of Economic Perspectives, American Economic Association, vol. 27(4), pages 65-86, Fall.
  6. Philip Liu & Haroon Mumtaz, 2011. "Evolving Macroeconomic Dynamics in a Small Open Economy: An Estimated Markov Switching DSGE Model for the UK," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 43(7), pages 1443-1474, October.

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