Working Paper

Even Keel and the Great Inflation


Abstract: During the early part of the Great Inflation (1965-1975), the Federal Reserve undertook even-keel operations to assist the US Treasury’s coupon security sales. Accordingly, the central bank delayed any tightening of monetary policy and permanently injected reserves into the banking system. Using real-time Taylor-type and McCallum-like reaction functions, we show that the Fed routinely undertook these operations only when it was otherwise tightening monetary policy. Using a quantity-equation framework, we show that the Federal Reserve’s even-keel actions added approximately one percentage point to the overall 5.1 percent average annual inflation rate over these years.

Keywords: Even Keel; Great Inflation; Federal Reserve; US Treasury;

JEL Classification: E5; N1; F3;

https://doi.org/10.26509/frbc-wp-202033

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Provider: Federal Reserve Bank of Cleveland

Part of Series: Working Papers

Publication Date: 2020-10-23

Number: 202033

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