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Would the Bundesbank have prevented the Great Inflation in the United States?

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  • Benati, Luca

Abstract

Policy counterfactuals based on estimated structural VARs routinely suggest that bringing Alan Greenspan back in the 1970s United States would not have prevented the Great Inflation. We show that a standard policy counterfactual suggests that the Bundesbank--which is near-universally credited for sparing West Germany the Great Inflation--would also not have been able to prevent the Great Inflation in the United States. The implausibility of this result sounds a cautionary note on taking the outcome of SVAR-based policy counterfactuals at face value, and raises questions on the reliability of such exercises.

Suggested Citation

  • Benati, Luca, 2011. "Would the Bundesbank have prevented the Great Inflation in the United States?," Journal of Economic Dynamics and Control, Elsevier, vol. 35(7), pages 1106-1125, July.
  • Handle: RePEc:eee:dyncon:v:35:y:2011:i:7:p:1106-1125
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    References listed on IDEAS

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    Cited by:

    1. Belongia, Michael T. & Ireland, Peter N., 2016. "The evolution of U.S. monetary policy: 2000–2007," Journal of Economic Dynamics and Control, Elsevier, vol. 73(C), pages 78-93.
    2. Benati, Luca, 2010. "Are policy counterfactuals based on structural VAR's reliable?," Working Paper Series 1188, European Central Bank.

    More about this item

    Keywords

    Bayesian VARs Time-varying parameters Stochastic volatility Identified VARs Great Inflation Policy counterfactuals;

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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