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The Great Inflation

The Rebirth of Modern Central Banking

Controlling inflation is among the most important objectives of economic policy. By maintaining price stability, policy makers are able to reduce uncertainty, improve price-monitoring mechanisms, and facilitate more efficient planning and allocation of resources, thereby raising productivity.

This volume focuses on understanding the causes of the Great Inflation of the 1970s and ’80s, which saw rising inflation in many nations, and which propelled interest rates across the developing world into the double digits. In the decades since, the immediate cause of the period’s rise in inflation has been the subject of considerable debate. Among the areas of contention are the role of monetary policy in driving inflation and the implications this had both for policy design and for evaluating the performance of those who set the policy. Here, contributors map monetary policy from the 1960s to the present, shedding light on the ways in which the lessons of the Great Inflation were absorbed and applied to today’s global and increasingly complex economic environment.

544 pages | 10 halftones, 84 line drawings, 35 tables | 6 x 9 | © 2013

National Bureau of Economic Research Conference Report

Economics and Business: Economics--Government Finance, Economics--International and Comparative


"Macroeconomists cannot run controlled experiments, but they can do a much better job of identifying and elucidating the extraordinary range of experiments that central banks have delivered. The Great Inflation is a terrific example."

“Regardless of one’s views, this volume is essential reading for academics and policymakers and its resonance for the problems that central banks and the fiscal authorities face today is very real.”

Journal of Economic History

“A common theme in the book is the critical role that political and economic institutions can play in shaping a country’s inflation experience. The general view is that central banks have been less independent than commonly perceived and that political support for price stability is essential. . . . The thoughtful discussions of the various institutional arrangements and the uneven progress in some countries toward central bank independence are particularly interesting and perhaps the most compelling aspect of the book.”

Eastern Economic Journal

Table of Contents

Michael D. Bordo and Athanasios Orphanides

Panel  Session  I: Pioneering Central Bankers Remember
     Practical Experiences in Reducing Inflation: The Case of New Zealand
        Don Brash
     Practical Experience in Reducing Inflation: The Case of Canada
        John Crow

I. Early Explanations

1. The Great Inflation: Did the Shadow Know Better?
     William Poole, Robert H. Rasche, and David C. Wheelock
     Comment: Christina D. Romer
2. The Supply-Shock Explanation of the Great Stagflation Revisited
     Alan S. Blinder and Jeremy B. Rudd

II. New Monetary Policy Explanations

3. The Great Inflation Drift
     Marvin Goodfriend and Robert G. King
     Comment: Lars E. O. Svensson
4. Falling Behind the Curve: A Positive Analysis of Stop-Start Monetary Policies and the Great Inflation
     Andrew Levin and John B. Taylor
     Comment: Bennett T. McCallum
5. Monetary Policy Mistakes and the Evolution of Inflation Expectations
     Athanasios Orphanides and John C. Williams
     Comment: Seppo Honkapohja

III. Other Countries’ Perspectives

6. Opting Out of the Great Inflation: German Monetary Policy after the Breakdown of Bretton Woods
     Andreas Beyer, Vitor Gaspar, Christina Gerberding, and Otmar Issing
     Comment: Benjamin M. Friedman
7. Great Inflation and Central Bank Independence in Japan
     Takatoshi Ito
     Comment: Frederic S. Mishkin
8. The Great Inflation in the United States and the United Kingdom: Reconciling Policy Decisions and Data Outcomes
     Riccardo DiCecio and Edward Nelson
     Comment: Matthew D. Shapiro

IV. International Perspectives

9. Bretton Woods and the Great Inflation
     Michael D. Bordo and Barry Eichengreen
     Comment: Allan H. Meltzer

Panel Session II: Lessons from History
     Lessons from History
        Donald L. Kohn
     The Great Inflation: Lessons for Central Bank
        Lucas Papademos
     Understanding Inflation: Lessons of the Past for the Future
        Harold James

Author Index
Subject Index

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