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The Cause of the Great Inflation: Interactions between the Government and the Monetary Policymakers

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  • Taiji Harashima

    (University of Tsukuba & Cabinet Office of Japan)

Abstract

The paper offers a new explanation for the cause of the Great Inflation by constructing a model that explicitly separates the roles of government and monetary policymakers. A mechanism that inflation can accelerate even if an inflation target is low is uncovered. The model solves the puzzle of the observed high inflation target during the Great Inflation and indicates that the policy errors at the time were not solely attributed to the monetary policymakers but made in the process of interaction between the governments and the monetary policymakers. The model is consistent with the international aspect of the Great Inflation.

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File URL: http://128.118.178.162/eps/mac/papers/0510/0510026.pdf
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Bibliographic Info

Paper provided by EconWPA in its series Macroeconomics with number 0510026.

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Length: 35 pages
Date of creation: 31 Oct 2005
Date of revision: 31 Oct 2005
Handle: RePEc:wpa:wuwpma:0510026

Note: Type of Document - pdf; pages: 35
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Web page: http://128.118.178.162

Related research

Keywords: The Great Inflation; Inflation; Persistence; Monetary policy;

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References

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  10. Orphanides, Athanasios & Williams, John C, 2005. "The Decline of Activist Stabilization Policy: Natural Rate Misperceptions, Learning and Expectations," CEPR Discussion Papers 4865, C.E.P.R. Discussion Papers.
  11. Robert J. Barro & David B. Gordon, 1981. "A Positive Theory of Monetary Policy in a Natural-Rate Model," NBER Working Papers 0807, National Bureau of Economic Research, Inc.
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  13. Timothy Cogley & Thomas Sargent, . "Evolving Post-World War II U.S. Inflation Dynamics," Working Papers 2132872, Department of Economics, W. P. Carey School of Business, Arizona State University.
  14. Orphanides, Athanasios, 2000. "The quest for prosperity without inflation," Working Paper Series 0015, European Central Bank.
  15. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-91, June.
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  17. Diebold, Francis X & Senhadji, Abdelhak S, 1996. "The Uncertain Unit Root in Real GNP: Comment," American Economic Review, American Economic Association, vol. 86(5), pages 1291-98, December.
  18. Gordon de Brouwer, 1998. "Estimating Output Gaps," RBA Research Discussion Papers rdp9809, Reserve Bank of Australia.
  19. Taiji Harashima, 2004. "The Ultimate Source of Inflation: A Microfoundation of the Fiscal Theory of the Price Level," Macroeconomics 0409018, EconWPA, revised 23 Sep 2004.
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Citations

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Cited by:
  1. Harashima, Taiji, 2007. "Hyperinflation, disinflation, deflation, etc.: A unified and micro-founded explanation for inflation," MPRA Paper 3836, University Library of Munich, Germany.
  2. Harashima, Taiji, 2013. "Escaping a Liquidity Trap: Keynes’ Prescription Is Right But His Reasoning Is Wrong," MPRA Paper 48115, University Library of Munich, Germany.
  3. Harashima, Taiji, 2007. "Why should central banks be independent?," MPRA Paper 1838, University Library of Munich, Germany, revised 19 Feb 2007.
  4. Harashima, Taiji, 2006. "The Sustainability of Budget Deficits in an Inflationary Economy," MPRA Paper 905, University Library of Munich, Germany.
  5. Harashima, Taiji, 2008. "A Microfounded Mechanism of Observed Substantial Inflation Persistence," MPRA Paper 10668, University Library of Munich, Germany.
  6. Harashima, Taiji, 2013. "The Phillips Curve and a Micro-foundation of Trend Inflation," MPRA Paper 51305, University Library of Munich, Germany.
  7. Harashima, Taiji, 2007. "The Optimal Quantity of Money Consistent with Positive Nominal Interest Rates," MPRA Paper 1839, University Library of Munich, Germany, revised 19 Feb 2007.

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