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

  • Benati, Luca

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.

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Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

Volume (Year): 35 (2011)
Issue (Month): 7 (July)
Pages: 1106-1125

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Handle: RePEc:eee:dyncon:v:35:y:2011:i:7:p:1106-1125
Contact details of provider: Web page: http://www.elsevier.com/locate/jedc

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  18. Otmar Issing, 2005. "Why did the Great Inflation not happen in Germany?," Review, Federal Reserve Bank of St. Louis, issue Mar, pages 329-336.
  19. Jacquier, Eric & Polson, Nicholas G & Rossi, Peter E, 2002. "Bayesian Analysis of Stochastic Volatility Models," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(1), pages 69-87, January.
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