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The Great Inflation and Early Disinflation in Japan and Germany

  • Edward Nelson

    (Federal Reserve Bank of St.Louis)

This paper considers the Great Inflation of the 1970s in Japan and Germany. From 1975 onward, these countries had low inflation relative to other large economies. Traditionally, this success is attributed to stronger discipline on the part of Japan and Germany’s monetary authorities—e.g., more willingness to accept temporary unemployment, or greater determination not to monetize government deficits. I instead attribute the success of these countries from the mid-1970s to their governments’ and monetary authorities’ acceptance that inflation is a monetary phenomenon. Likewise, their higher inflation in the first half of the 1970s is attributable to the fact that their policymakers over this period embraced nonmonetary theories of inflation.

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Article provided by International Journal of Central Banking in its journal International Journal of Central Banking.

Volume (Year): 3 (2007)
Issue (Month): 4 (December)
Pages: 23-76

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Handle: RePEc:ijc:ijcjou:y:2007:q:4:a:2
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  1. Coenen, Günter & Levin, Andrew T., 2004. "Identifying the influences of nominal and real rigidities in aggregate price-setting behavior," Working Paper Series 0418, European Central Bank.
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  12. Orphanides, Athanasios & Williams, John C, 2006. "Inflation Targeting under Imperfect Knowledge," CEPR Discussion Papers 5664, C.E.P.R. Discussion Papers.
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  15. Otmar Issing, 2005. "Why did the Great Inflation not happen in Germany?," Review, Federal Reserve Bank of St. Louis, issue Mar, pages 329-336.
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  20. repec:cup:macdyn:v:6:y:2002:i:1:p:111-44 is not listed on IDEAS
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