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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 National Bureau of Economic Research, Inc in its series NBER Working Papers with number 14895.

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Date of creation: Apr 2009
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Publication status: published as The Great Inflation in the United States and the United Kingdom: Reconciling Policy Decisions and Data Outcomes , Riccardo DiCecio, Edward Nelson. in The Great Inflation: The Rebirth of Modern Central Banking , Bordo and Orphanides. 2013
Handle: RePEc:nbr:nberwo:14895
Note: ME
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  2. Edward Nelson, 2004. "The Great Inflation of the seventies: what really happened?," Working Papers 2004-001, Federal Reserve Bank of St. Louis.
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  10. Riccardo DiCecio & Edward Nelson, 2007. "An estimated DSGE model for the United Kingdom," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 215-232.
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  17. Gorodnichenko, Yuriy & Shapiro, Matthew D., 2007. "Monetary policy when potential output is uncertain: Understanding the growth gamble of the 1990s," Journal of Monetary Economics, Elsevier, vol. 54(4), pages 1132-1162, May.
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