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The 1971-1974 Controls Program and The Price Level: An Econometric Post-Mortem

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  • Alan S. Blinder
  • William J. Newton

Abstract

This paper provides new empirical evidence on the effects of the Nixon wage-price controls on the price level. The major new wrinkle is that the controls are treated as a quantitative (rather than just a qualitative) phenomenon through the use of a specially-constructed series indicating the fraction of the economy that was controlled. According to the estimates, by February 1974controls had lowered the non-food non-energy price level by 3-4 percent. After that point, and especially after controls ended in April 1974, a period of rapid 'catch up' inflation eroded the gains that had been achieved, leaving the price level from zero to 2 percent below what it would have been in the absence of controls. The dismantling of controls can thus account for most of the burst of 'double digit' inflation in non-food and non-energy prices during 1974.

Suggested Citation

  • Alan S. Blinder & William J. Newton, 1981. "The 1971-1974 Controls Program and The Price Level: An Econometric Post-Mortem," NBER Working Papers 0279, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:0279
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    References listed on IDEAS

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    1. Feige, Edgar L. & Pearce, Douglas K., 1976. "Inflation and incomes policy: An application of time series models," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 2(1), pages 273-302, January.
    2. McGuire, Timothy W., 1976. "On estimating the effects of controls," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 2(1), pages 115-156, January.
    3. J. Dawson Ahalt & Marvin H. Kosters, 1975. "Controls and Inflation: The Economic Stabilization Program in Retrospect," Books, American Enterprise Institute, number 52083, September.
    4. Oi, Walter Y., 1976. "On measuring the impact of wage-price controls: A critical appraisal," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 2(1), pages 7-64, January.
    5. Carlson, John A, 1977. "Short-Term Interest Rates as Predictors of Inflation: Comment," American Economic Review, American Economic Association, vol. 67(3), pages 469-475, June.
    6. repec:bla:econom:v:37:y:1970:i:146:p:115-38 is not listed on IDEAS
    7. Darby, Michael R., 1976. "Price and wage controls: The first two years," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 2(1), pages 235-263, January.
    8. Robert J. Gordon, 1975. "The Impact of Aggregate Demand on Prices," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 6(3), pages 613-670.
    9. Robert J. Gordon, 1973. "The Responses of Wages and Prices to the First Two Years of Controls," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 4(3), pages 765-780.
    10. Joines, Douglas, 1977. "Short-Term Interest Rates as Predictors of Inflation: Comment," American Economic Review, American Economic Association, vol. 67(3), pages 476-477, June.
    11. Charles L. Schultze, 1975. "Falling Profits, Rising Profit Margins, and the Full-Employment Profit Rate," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 6(2), pages 449-472.
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    Cited by:

    1. Ricardo Reis, 2021. "Losing the Inflation Anchors," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 52(2 (Fall)), pages 307-379.
    2. Alan S. Blinder & Jeremy B. Rudd, 2013. "The Supply-Shock Explanation of the Great Stagflation Revisited," NBER Chapters, in: The Great Inflation: The Rebirth of Modern Central Banking, pages 119-175, National Bureau of Economic Research, Inc.
    3. Conway, Roger K. & Gill, Gurmukh S., 1987. "Is the Phillips Curve Stable? A Time-Varying Parameter Approach," Staff Reports 277925, United States Department of Agriculture, Economic Research Service.
    4. Arnade, Carlos & Shoemaker, Robbin, 1988. "Portraying Traders As Revenue Maximizers," Staff Reports 278144, United States Department of Agriculture, Economic Research Service.
    5. Alan S. Blinder, 1982. "The Anatomy of Double-Digit Inflation in the 1970s," NBER Chapters, in: Inflation: Causes and Effects, pages 261-282, National Bureau of Economic Research, Inc.
    6. repec:pri:cepsud:176blinder is not listed on IDEAS
    7. Frye, Jon & Gordon, Robert J, 1981. "Government Intervention in the Inflation Process: The Econometrics of "Self-Inflicted Wounds"," American Economic Review, American Economic Association, vol. 71(2), pages 288-294, May.
    8. Alan S. Blinder & Jeremy B. Rudd, 2013. "The Supply-Shock Explanation of the Great Stagflation Revisited," NBER Chapters, in: The Great Inflation: The Rebirth of Modern Central Banking, pages 119-175, National Bureau of Economic Research, Inc.

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