We would like to thank an anonymous referee as well as Alex Cukierman, Bob King, Andy Levin, Frank Schforheide, Mike Spagat, Mike Woodford, and the participants at the International Research Forum on Monetary Policy in Washington, D.C. and at the European Monetary Forum in Bonn for valuable comments. Dellas is grateful to Ecoscientia Stiftung for generous financial support.
The Great Inflation of the 1970s
Version of Record online: 18 APR 2007
Journal of Money, Credit and Banking
Volume 39, Issue 2-3, pages 713–731, March–April 2007
How to Cite
COLLARD, F. and DELLAS, H. (2007), The Great Inflation of the 1970s. Journal of Money, Credit and Banking, 39: 713–731. doi: 10.1111/j.0022-2879.2007.00043.x
- Issue online: 18 APR 2007
- Version of Record online: 18 APR 2007
- Received November 2, 2005; and accepted in revised form January 20, 2006.
- imperfect information;
- monetary policy rule;
The two leading explanations for the poor inflation performance during the 1970s are policy opportunism (Barro and Gordon 1983) and “inadvertently” bad monetary policy (Clarida, Gali, and Gertler 2000, Orphanides 2003). The main models of the latter category are that of Orphanides (loose monetary policy was the outcome of mis-perceptions about potential output rather than of inflation tolerance) and of Clarida, Gali, and Gertler (weak policy reaction to expected inflation led to indeterminacies). We show that both of these models can account for high and persistent inflation and also have satisfactory overall performance if an exceptionally large decrease in productivity took place at that time.