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The great inflation in the United States and the United Kingdom: reconciling policy decisions and data outcomes

  • Riccardo DiCecio
  • Edward Nelson

We argue that the Great Inflation experienced by both the United Kingdom and the United States in the 1970s has an explanation valid for both countries. The explanation does not appeal to common shocks or to exchange rate linkages, but to the common doctrine underlying the systematic monetary policy choices in each country. The nonmonetary approach to inflation control that was already influential in the United Kingdom came to be adopted by the United States during the 1970s. We document our position by examining official policymaking doctrine in the United Kingdom and the United States in the 1970s, and by considering results from a structural macroeconomic model estimated using U.K. data.

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Paper provided by Federal Reserve Bank of St. Louis in its series Working Papers with number 2009-015.

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Date of creation: 2009
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Handle: RePEc:fip:fedlwp:2009-015
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  1. Beyer, Andreas & Gaspar, Vítor & Gerberding, Christina & Issing, Otmar, 2009. "Opting out of the great inflation: German monetary policy after the breakdown of Bretton Woods," Discussion Paper Series 1: Economic Studies 2009,12, Deutsche Bundesbank, Research Centre.
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  13. Bennett T. McCallum, 1995. "Two Fallacies Concerning Central Bank Independence," NBER Working Papers 5075, National Bureau of Economic Research, Inc.
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  19. Lawrence J. Christiano & Christopher J. Gust, 2000. "The expectations trap hypothesis," International Finance Discussion Papers 676, Board of Governors of the Federal Reserve System (U.S.).
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