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Lessons from history for successful disinflation

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  • Romer, Christina D.
  • Romer, David H.

Abstract

Why are some attempts at disinflation successful and others failures? We investigate this question in the context of the Federal Reserve's attempts at disinflation since World War II. Our central finding is that a fundamental determinant of success was the strength of the Federal Reserve's commitment to disinflation at the start of its attempts. In episodes where its commitment was high, there were significant declines in inflation that were often long-lasting, while in ones where its commitment was low, falls in inflation were small and short-lived. We find that although the extent of the Federal Reserve's commitment was often clear to the public, there is no evidence that stronger commitment to disinflation directly affected expected inflation. Rather, the main channel through which weak commitment led to unsuccessful disinflation was premature abandonment of the disinflationary policy. We conclude by discussing the implications for the Federal Reserve's current effort at disinflation.

Suggested Citation

  • Romer, Christina D. & Romer, David H., 2024. "Lessons from history for successful disinflation," Journal of Monetary Economics, Elsevier, vol. 148(S).
  • Handle: RePEc:eee:moneco:v:148:y:2024:i:s:s0304393224001077
    DOI: 10.1016/j.jmoneco.2024.103654
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    References listed on IDEAS

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    1. Giorgio E. Primiceri, 2006. "Why Inflation Rose and Fell: Policy-Makers' Beliefs and U. S. Postwar Stabilization Policy," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 121(3), pages 867-901.
    2. Christina D. Romer & David Romer, 2002. "The evolution of economic understanding and postwar stabilization policy," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 11-78.
    3. Refet S Gürkaynak & Andrew Levin & Eric Swanson, 2010. "Does Inflation Targeting Anchor Long-Run Inflation Expectations? Evidence from the U.S., UK, and Sweden," Journal of the European Economic Association, MIT Press, vol. 8(6), pages 1208-1242, December.
    4. Emi Nakamura & Jón Steinsson, 2018. "High-Frequency Identification of Monetary Non-Neutrality: The Information Effect," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 133(3), pages 1283-1330.
    5. Charles H. Whiteman, 1979. "A new investigation of the impact of wage and price controls," Monograph, Federal Reserve Bank of New York, number 1979aniotiowap.
    6. David H. Romer & Christina D. Romer, 2000. "Federal Reserve Information and the Behavior of Interest Rates," American Economic Review, American Economic Association, vol. 90(3), pages 429-457, June.
    7. Christina D. Romer & David H. Romer, 2023. "Does Monetary Policy Matter? The Narrative Approach after 35 Years," NBER Working Papers 31170, National Bureau of Economic Research, Inc.
    8. Christina D. Romer & David H. Romer, 2023. "Presidential Address: Does Monetary Policy Matter? The Narrative Approach after 35 Years," American Economic Review, American Economic Association, vol. 113(6), pages 1395-1423, June.
    9. Evans, Paul, 1982. "The Effects of General Price Controls in the United States during World War II," Journal of Political Economy, University of Chicago Press, vol. 90(5), pages 944-966, October.
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    Cited by:

    1. Rami Najjar & Adam Hale Shapiro, 2025. "Does Monetary Policy Tightening Reduce Inflation?," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, vol. 2025(3), pages 1-6, February.

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    More about this item

    Keywords

    Disinflation; Monetary policy; Commitment; Inflation expectations; Narrative approach;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes
    • N12 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - U.S.; Canada: 1913-

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