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Poor hand or poor play? the rise and fall of inflation in the U.S

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  • Francois R. Velde

Abstract

Inflation in the U.S. rose in the 1970s and fell in the 1980s and 1990s. The conventional story attributes this pattern to changes in monetary policy. Policymakers made errors and learned from them. This article presents the story and existing alternatives that emphasize instead changes beyond the Fed's control. The author also reviews the recent empirical literature on the role played by changes in luck versus changes in policy and finds substantial evidence for both.

Suggested Citation

  • Francois R. Velde, 2004. "Poor hand or poor play? the rise and fall of inflation in the U.S," Economic Perspectives, Federal Reserve Bank of Chicago, vol. 28(Q I), pages 34-51.
    • Handle: RePEc:fip:fedhep:y:2004:i:qi:p:34-51:n:v.28no.1
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    References listed on IDEAS

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    1. Timothy Cogley & Thomas J. Sargent, 2005. "The conquest of US inflation: Learning and robustness to model uncertainty," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 8(2), pages 528-563, April.
    2. Sharon Kozicki & Peter A. Tinsley, 2005. "Perhaps the FOMC did what it said it did : an alternative interpretation of the Great Inflation," Research Working Paper RWP 05-04, Federal Reserve Bank of Kansas City.
    3. Jeffrey M. Lacker & John A. Weinberg, 2007. "Inflation and unemployment: a layperson's guide to the Phillips curve," Economic Quarterly, Federal Reserve Bank of Richmond, vol. 93(Sum), pages 201-227.
    4. Hetzel, Robert L., 2017. "A proposal to clarify the objectives and strategy of monetary policy," Journal of Macroeconomics, Elsevier, vol. 54(PA), pages 72-89.
    5. Alex Brazier & Richard Harrison & Mervyn King & Tony Yates, 2008. "The Danger of Inflating Expectations of Macroeconomic Stability: Heuristic Switching in an Overlapping-Generations Monetary Model," International Journal of Central Banking, International Journal of Central Banking, vol. 4(2), pages 219-254, June.
    6. Jeffrey M. Lacker & John A. Weinberg, 2006. "Inflation and unemployment : a layperson's guide to the Phillips curve. 2006 annual report of the Federal Reserve Bank of Richmond," Annual Report, Federal Reserve Bank of Richmond, pages 5-29.

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    Keywords

    Inflation (Finance); Monetary policy;

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