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Postwar Macroeconomics: The Evolution of Events and Ideas

  • Robert J. Gordon

This paper traces the evolution of macroeconomic events and ideas from the late 1940s to the present day. After a brief introduction that highlights the unique features of the main macroeconomic variables as compared to their behavior before 1947, the paper turns to an analysis of four main postwar sub-periods. The analysis of each sub-period begins with a summary of the dominant conceptual framework popular at the time, reviews the most surprising features of both demand fluctuations and supply phenomena, and concludes with a retrospective evaluation of policy. Many shifts in macroeconomic thinking can be traced to the influence of particular events. The small role that monetary changes played in explaining demand fluctuations in the first postwar decade helped maintain intact the Keynesian multiplier framework, but the increasing importance of autonomous monetary movements in the second decade laid the groundwork for a greater emphasis on the potency of monetary policy in the late 1960s. The widespread acceptance of monetarism owes much to the coincidence in 1968 of an unexpected acceleration in inflation together with the failure of the tax surcharge enacted in that year. Similarly, the increased degree of inertia evident in the behavior of inflation from 1954 on helped win ready acceptance for the idea of a stable Phillips-curve tradeoff, while the refusal of inflation to abate in 1970 helped solidify the victory of the natural hypothesis. A major theme of the paper is the gradual but profound shift in macroeconomics from the dominance of demand issues to a new emphasis on supply topics. Price controls, crop failures, and OPEC actions in the l970s have brought supply shocks to the forefront of policy discussions, revived fiscal policy asa means of countering supply shocks, and lessened support for a monetarist reliance on simple policy rules.

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File URL: http://www.nber.org/papers/w0459.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 0459.

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Date of creation: Feb 1980
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Publication status: published as Gordon, Robert J. "Postwar Macroeconomics: The Evolution of Events and Ideas." The American Economy in Transition, edited by Martin Feldstein, pp. 101-182. Chicago: University of Chicago Press, 1980.
Handle: RePEc:nbr:nberwo:0459
Note: EFG
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  1. Stephen M. Goldfeld, 1973. "The Demand for Money Revisited," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 4(3), pages 577-646.
  2. Gordon, Robert J, 1970. "The Brookings Model in Action: A Review Article," Journal of Political Economy, University of Chicago Press, vol. 78(3), pages 489-525, May-June.
  3. John A. Carlson, 1977. "A Study of Price Forecasts," NBER Chapters, in: Annals of Economic and Social Measurement, Volume 6, number 1, pages 27-56 National Bureau of Economic Research, Inc.
  4. Phelps, Edmund S, 1978. "Commodity-Supply Shock and Full-Employment Monetary Policy," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 10(2), pages 206-21, May.
  5. Perloff, Jeffrey M. & Wachter, Michael L., 1979. "A production function--nonaccelerating inflation approach to potential output : Is measured potential output too high?," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 10(1), pages 113-163, January.
  6. Edward M. Gramlich, 1979. "Macro Policy Responses to Price Shocks," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 10(1), pages 125-166.
  7. Leonall C. Andersen & Jerry L. Jordon, 1968. "Monetary and fiscal actions: a test of their relative importance in economic stabilization," Review, Federal Reserve Bank of St. Louis, issue Nov, pages 11-23.
  8. Edgar L. Feige & Douglas K. Pearce, 2004. "The Wage-Price Control Experiment--Did It Work?," Macroeconomics 0408003, EconWPA.
  9. Milton Friedman, 1959. "The Demand for Money: Some Theoretical and Empirical Results," Journal of Political Economy, University of Chicago Press, vol. 67, pages 327.
  10. Robert J. Gordon, 1975. "Alternative Responses of Policy to External Supply Shocks," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 6(1), pages 183-206.
  11. Eisner, Robert, 1969. "Fiscal and Monetary Policy Reconsidered," American Economic Review, American Economic Association, vol. 59(5), pages 897-905, December.
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