Journal Article

Origins of the Great Inflation


Abstract: The Great Inflation from 1965 to 1984 is the climactic monetary event of the last part of the 20th century. This paper analyzes why it started and why it continued for many years. Like others, it attributes the start of inflation to analytic errors, particularly the widespread acceptance of the simple Keynesian model with its implication that monetary and fiscal policy should be coordinated. In practice, that meant that the Federal Reserve financed a large part of the fiscal deficit. This paper gives a large role to political decisionmaking. Continuation of inflation depended on political choices, analytic errors, and the entrenched belief that inflation would continue.

Keywords: Inflation (Finance); Monetary policy; Economic history;

Status: Published in Proceedings of a Special Conference of the Federal Reserve Bank of St. Louis (October 7-8, 2004 ) : Reflections on Monetary Policy 25 Years After October 1979.

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Bibliographic Information

Provider: Federal Reserve Bank of St. Louis

Part of Series: Review

Publication Date: 2005

Volume: 87

Issue: Mar

Pages: 145-176