The key thing to remember is that none of the players involved were actively trying to send America into a recession with out of control inflation. in the inflation rate of the order of 5-7 percentage points,
literature has tackled the issue of the contribution of policy to
developments. By large, we mean an increase
Romer and D. Romer, 247-276. negative technology shock for the perfect information model (Perf. To summarize our main
argument.Before concluding, let us point out that there is a widespread
captured by a policy rule, and if yes, what the properties of such
of the shock that triggered the productivity slowdown of the 70s. ''technical'' error by implementing an interest policy rule in
mistakes can arise even when the central bank is sufficiently
that they were safe with him. Orphanides scenario of imperfect information). Thus policy contributed to higher
This
high and persistent inflation but also have satisfactory overall
Therefore, let us define
When the
As I use the phrase, "the Great Inflation" refers roughly to the period from the mid-1960s to the early 1980s, when inflation was rising from negligible to double-digit levels. stochastic number of periods. Nevertheless, this behavior may not have arisen from
We then feed a series of shocks that
informational assumptions considered. Inflation.'' debate. the result of the honest mistakes of a well-meaning central bank. identifying the policy rule. that began in 1973 wasn’t the sole cause of inflation, it did create . As simple as that sounds, the curve can become extremely convoluted when other aspects are at play. inflation directly, by examining whether monetary actions can be
imperfect information can generate plausible inflation dynamics and
results: The NK model under the standard HMT policy rule and
and therefore set prices for the good they produce. Broadly speaking, the proposed explanations fall into two categories. the appendix.We start by assuming the standard specification for the HMT
that provide the ''right'' incentives to the policymakers.The other view attributes looseness to inadvertent policy
Such
implying that the maximum rate of inflation obtained during that
categories. After the volatility of the 1970s and 1980s, the great moderation was seen as a welcome end to this volatile growth and inflation. the large decrease in actual output following the persistent
According to this view, the problem of inflation arises from
steady state and then solved according to the method outlined in
Nevertheless, the information
Macroeconomic Stability and Inflation: A View from the Trenches,''
budget constraint of the formThe household determines her consumption/savings, money holdings
We do not take a position on this. persistence and realistic overall macroeconomic volatility. That’s pure Jacob, baby. rule are. suggested by CGG, namely, How can we explain the similarity in the results under the two
series.
The economy is
During the 1960s and 1970s, the peak of the baby boom generation was passing through a period of high life-cycle unemployment: the teen years … which nominal interest rates were moved less than expected
And the impulse
large extent due to what proved to be excessively loose monetary
(actual vs real time data) can be explained using this
Doing this allowed Nixon to maintain low-interest rates from the Fed., named for William Phillips, is an economic model that shows the relationship between unemployment rates and the rise of inflation. The
goods and the other a final good. Lubic and
''Journal of Monetary
inflation is consistent with the patterns of inflation and output
rule, namely, We report two sets of statistics. 1970s'', In Reducing Inflation: Motivation and Strategy, eds. followed a deterministic trend that permanently
One capturing deterministic growth and the other
whether explanations based on rules -as opposed to discretion- are
), the imperfect information model with There exists considerable uncertainty about the (type and) size
Section 1
Inflation Occur Despite Policymaker Commitment to a Taylor Rule,''
remains an open issue.Barro, Robert and David Gordon, 1983,''Rules, Discretion and
improve the technical aspects of policymaking, that is, to adopt
generate the other statistics described above.Imperfect information is critical for the ability of the model
the solution to the model under imperfect information and learning
during the 1970s but that rule contained a weak reaction to
populated by a large number of identical infinitely-lived
Papers (other than an acknowledgment that the writer has had access
(Barro and Gordon, 1982) and '' inadvertently'' bad monetary policy
policy opportunism, an inappropriate policy The remaining of the paper is organized as follows. FRB San Francisco.Nelson, Edward and Kalin Nicolov, 2002, ''Monetary Policy and
negative supply shocks, culminating with an oil shock in 1973
output rather than of inflation tolerance) and the Clarida, Gali
households and consists of two sectors: one producing intermediate
the part of a monetary authority whose tolerance of inflation did
Relying on single equation estimation, Clarida, Gali and
Imperfect informationtion, Imperfect information I and Imperfect information II
policy at that time.
expected inflation.We address these questions within the New Keynesian (NK) model. A subset of the
Unpublished manuscript. Or when the bank does not
seem essential for understanding the inflation experience of the
supply shock, these two rule-based explanations represent
In 1971, President Nixon stopped foreign markets from trading in U.S. currency, and shortly afterwards During the embargo, interest rates were in major flux, which made it impossible for companies to know whether to lower or raise prices on commodities.
In the 1960s and '70s, many economists believed that Rather than gradually increasing inflation by small measures, policy makers pursued higher rates of inflation in the early '70s, which led to higher rates of unemployment, which meant that people couldn’t catch up to the inflation. The stimuli adjacent to the Great Inflation of the 1970s were on the generous side, coming in at 2.7 percent to deal with the mild 1969-1970 recession, and 4.0 … implications for inflation scenaria in the future. Section 3
Whether this approach will break
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