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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 sheer 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 very reliability of such exercises. JEL Classification: E32, E47, E52, E58

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Paper provided by European Central Bank in its series Working Paper Series with number 1134.

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Date of creation: Dec 2009
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Handle: RePEc:ecb:ecbwps:20091134
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