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The causes of inflation

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  • Frederic S. Mishkin

Abstract

This paper attempts to provide a perspective on the causes of inflation by exploring why sustained inflations occur and the role of monetary policy in the inflation process. The conclusion reached in this paper is that in the last ten years there has been a convergence of views in the economics profession on the causes of inflation. As long as inflation is appropriately defined to be a sustained inflation, macro-economic analysis, whether of the monetarist or Keynesian persuasion, leads to agreement with Milton Friedman's famous dictum, "Inflation is always and everywhere a monetary phenomenon." However, the conclusion that inflation is a monetary phenomenon does not settle the issue of what causes inflation because we also need to understand why inflationary monetary policy occurs. This paper also examines this issue and it finds that the underlying cause of inflationin the United States has been accommodating monetary policy geared to achieving a high employment target. The role of expectations has been important in the inflationary process so that to prevent the resurgence of inflation at a minimum cost in terms of unemployment and output loss, monetary policy must be both non-accommodating and credible.
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Suggested Citation

  • Frederic S. Mishkin, 1984. "The causes of inflation," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 1-32.
  • Handle: RePEc:fip:fedkpr:y:1984:p:1-32
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    References listed on IDEAS

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    1. Blanchard, Olivier J, 1984. "The Lucas Critique and the Volcker Deflation," American Economic Review, American Economic Association, vol. 74(2), pages 211-215, May.
    2. Thomas J. Sargent, 1981. "Stopping moderate inflations: the methods of Poincaré and Thatcher," Working Papers 1, Federal Reserve Bank of Minneapolis.
    3. Barro, Robert J, 1977. "Unanticipated Money Growth and Unemployment in the United States," American Economic Review, American Economic Association, vol. 67(2), pages 101-115, March.
    4. Eckstein, Otto, 1984. "Foundations of Aggregate Supply Price," American Economic Review, American Economic Association, vol. 74(2), pages 216-220, May.
    5. George L. Perry, 1983. "What Have We Learned about Disinflation," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 14(2), pages 587-602.
    6. Eisner, Robert & Pieper, Paul J, 1986. "A New View of the Federal Debt and Budget Deficits: Reply," American Economic Review, American Economic Association, vol. 76(5), pages 1156-1157, December.
    7. Phillip Cagan & William Fellner, 1983. "Tentative Lessons from the Recent Disinflationary Effort," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 14(2), pages 603-610.
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    Cited by:

    1. repec:wsi:medjxx:v:05:y:2013:i:03:n:s1793812013500193 is not listed on IDEAS
    2. Sergey Narkevich & Pavel Trunin, 2012. "Reserve Currencies: Factors of Evolution and their Role in the World Economy," Research Paper Series, Gaidar Institute for Economic Policy, issue 162P.
    3. repec:rnd:arjebs:v:8:y:2016:i:4:p:109-122 is not listed on IDEAS

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    Keywords

    Inflation (Finance) ; Monetary policy;

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