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Monetary Policy Neglect and the Great Inflation in Canada, Australia, and New Zealand

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  • Nelson, Edward

Abstract

This paper studies the Great Inflation in Canada, Australia, and New Zealand. Newspaper coverage and policymakers’ statements are used to analyze the views on the inflation process that led to the 1970s macroeconomic policies, and the different movement in each country away from 1970s views. I argue that to understand the course of policy in each country, it is crucial to use the monetary policy neglect hypothesis, which claims that the Great Inflation occurred because policymakers delegated inflation control to nonmonetary devices. This hypothesis helps explain why, unlike Canada, Australia and New Zealand continued to suffer high inflation in the mid-1980s. The delayed disinflation in these countries reflected the continuing importance accorded to nonmonetary views of inflation.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 822.

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Date of creation: 25 Jan 2005
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Publication status: Published in International Journal of Central Banking Number 1.Volume(2005): pp. 133-179
Handle: RePEc:pra:mprapa:822

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  1. Clarida, Richard & Galí, Jordi & Gertler, Mark, 1998. "Monetary Policy Rules and Macroeconomic Stability: Evidence and Some Theory," CEPR Discussion Papers 1908, C.E.P.R. Discussion Papers.
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  3. Orphanides, Athanasios, 1999. "The Quest for Prosperity Without Inflation," Working Paper Series 93, Sveriges Riksbank (Central Bank of Sweden).
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  8. David Gruen & Adrian Pagan & Christopher Thompson, 1999. "The Phillips Curve in Australia," RBA Research Discussion Papers rdp1999-01, Reserve Bank of Australia.
  9. Lawrence J. Christiano & Christopher Gust, 2000. "The expectations trap hypothesis," Working Paper 0004, Federal Reserve Bank of Cleveland.
  10. Guy Debelle, 1996. "The Ends of Three Small Inflations: Australia, New Zealand and Canada," Canadian Public Policy, University of Toronto Press, vol. 22(1), pages 56-78, March.
  11. repec:fth:bfdipa:18/2001 is not listed on IDEAS
  12. 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.
  13. Peter N. Ireland, 1998. "Does the Time-Consistency Problem Explain the Behavior of Inflation in the United States?," Boston College Working Papers in Economics 415, Boston College Department of Economics.
  14. Laidler, David, 1989. "Dow and Saville's Critique of Monetary Policy--A Review Essay," Journal of Economic Literature, American Economic Association, vol. 27(3), pages 1147-59, September.
  15. Amit Kara & Edward Nelson, 2004. "International evidence on the stability of the optimizing IS equation," Working Papers 2003-020, Federal Reserve Bank of St. Louis.
  16. P. D. Jonson, 1973. "Our Current Inflationary Experience," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 6(2), pages 21-26.
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  18. Taylor, John B., 1993. "Discretion versus policy rules in practice," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 39(1), pages 195-214, December.
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  20. Huang, Angela & Margaritis, Dimitri & Mayes, David, 2001. "Monetary policy rules in practice: Evidence from New Zealand," Research Discussion Papers 18/2001, Bank of Finland.
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Cited by:
  1. Jan Libich, 2006. "Inflexibility Of Inflation Targeting Revisited: Modeling The "Anchoring"Effect," CAMA Working Papers 2006-02, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  2. Orphanides, Athanasios & Williams, John C., 2005. "The decline of activist stabilization policy: Natural rate misperceptions, learning, and expectations," Journal of Economic Dynamics and Control, Elsevier, vol. 29(11), pages 1927-1950, November.
  3. Dées, Stéphane & Holly, Sean & Pesaran, Hashem & Smith, Vanessa, 2007. "Long run macroeconomic relations in the global economy," Working Paper Series 0750, European Central Bank.
  4. Daniel L. Thornton, 2007. "The lower and upper bounds of the Federal Open Market Committee's long-run inflation objective," Review, Federal Reserve Bank of St. Louis, issue May, pages 183-194.
  5. Neely, Christopher J. & Rapach, David E., 2011. "International comovements in inflation rates and country characteristics," Journal of International Money and Finance, Elsevier, vol. 30(7), pages 1471-1490.
  6. Christina D. Romer, 2005. "Commentary on "Origins of the Great Inflation"," Review, Federal Reserve Bank of St. Louis, issue Mar, pages 177-186.
  7. Kitov, Ivan, 2007. "Exact prediction of inflation and unemployment in Canada," MPRA Paper 5015, University Library of Munich, Germany.
  8. Nelson, Edward, 2008. "Ireland and Switzerland: The jagged edges of the Great Inflation," European Economic Review, Elsevier, vol. 52(4), pages 700-732, May.
  9. Christopher J. Neely & David E. Rapach, 2008. "Is inflation an international phenomenon?," Working Papers 2008-025, Federal Reserve Bank of St. Louis.

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