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Would the bundesbank have prevented the great inflation in the United States?

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  • Luca Benati

    (Monetary Policy ResearchDivision - Monetary Policy ResearchDivision)

  • Banque de France

    (Monetary Policy ResearchDivision - Monetary Policy ResearchDivision)

Abstract

Policy counterfactuals based on estimated structural VARs routinely suggest that bringing Alan Greenspan back in the 1970s' United States would not have prevented the Great Inflation. We show that a standard policy counterfactual suggests that the --which is near-universally credited for sparing West Germany the Great Inflation--would also have been able to prevent the Great Inflation in the United States. The implausibility of this result sounds a cautionary note on taking the outcome of SVAR-based policy counterfactuals at face value, and raises questions on the reliability of such exercises.

Suggested Citation

  • Luca Benati & Banque de France, 2011. "Would the bundesbank have prevented the great inflation in the United States?," Post-Print hal-00822061, HAL.
    • Handle: RePEc:hal:journl:hal-00822061
    DOI: 10.1016/j.jedc.2011.02.002
    Note: View the original document on HAL open archive server: https://hal.science/hal-00822061
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    Cited by:

    1. Belongia, Michael T. & Ireland, Peter N., 2016. "The evolution of U.S. monetary policy: 2000–2007," Journal of Economic Dynamics and Control, Elsevier, vol. 73(C), pages 78-93.
    2. Magnus Reif, 2020. "Macroeconomics, Nonlinearities, and the Business Cycle," ifo Beiträge zur Wirtschaftsforschung, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, number 87.
    3. Davide Delle Monache & Ivan Petrella & Fabrizio Venditti, 2016. "Common Faith or Parting Ways? A Time Varying Parameters Factor Analysis of Euro-Area Inflation," Advances in Econometrics, in: Dynamic Factor Models, volume 35, pages 539-565, Emerald Group Publishing Limited.
    4. Kavanagh, Ella & Zhu, Sheng & O’Sullivan, Niall, 2022. "Monetary policy, trade-offs and the transmission of UK Monetary Policy," Journal of Policy Modeling, Elsevier, vol. 44(6), pages 1128-1147.
    5. Benati, Luca, 2010. "Are policy counterfactuals based on structural VAR's reliable?," Working Paper Series 1188, European Central Bank.
    6. Aymeric Ortmans, 2020. "Evolving Monetary Policy in the Aftermath of the Great Recession," Documents de recherche 20-01, Centre d'Études des Politiques Économiques (EPEE), Université d'Evry Val d'Essonne.

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    More about this item

    Keywords

    Bayesian VARs; Time-varying parameters; Stochastic volatility; Identified VARs; Great Inflation; Policy counterfactuals;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications
    • 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

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