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The Incredible Volcker Disinflation

  • Marvin Goodfriend
  • Robert King

Using a simple modern macroeconomic model, we argue that the real effects of the Volcker disinflation in the early 1980s were mainly due to imperfect credibility, evident in volatility and stubbornness of long-term interest rates. Studying recently released transcripts of the Federal Open Market Committee, we find -- to our surprise -- that Volcker and other FOMC members also regarded long-term interest rates as key indicators of inflation expectations and of their disinflationary policy's credibility. We also consider the interplay of monetary targets, operating procedures, and credibility during the Volcker disinflation.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 11562.

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Date of creation: Aug 2005
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Publication status: published as Goodfriend, Marvin and Robert G. King. "The Incredible Volcker Disinflation," Journal of Monetary Economics, 2005, v52(5,Jul), 981-1015.
Handle: RePEc:nbr:nberwo:11562
Note: EFG ME
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  2. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September.
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  8. Matthew D. Shapiro, 1994. "Federal Reserve Policy: Cause and Effect," NBER Chapters, in: Monetary Policy, pages 307-334 National Bureau of Economic Research, Inc.
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  13. Robert L. Hetzel, 1998. "Arthur Burns and inflation," Economic Quarterly, Federal Reserve Bank of Richmond, issue Win, pages 21-44.
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