Introduction

Michael D. Bordo and Athanasios Orphanides

Panel Session I Pioneering Central Bankers Remember

Practical Experiences in Reducing Inflation

Don Brash

Practical Experiences in Reducing Inflation

John Crow

I Early Explanations

1 The Great Inflation

William Poole, Robert H. Rasche, and David C. Wheelock

2 The Supply-Shock Explanation of the Great Stagflation Revisited

Alan S. Blinder and Jeremy B. Rudd

II New Monetary Policy Explanations

3 The Great Inflation Drift

Marvin Goodfriend and King

4 Falling Behind the Curve: A Positive Analysis of Stop-Start Monetary Policies and the Great Inflation

Andrew Levin and John B. Taylor

5 Monetary Policy Mistakes and the Evolution of Inflation Expectations

Athanasios OrphanidesJohn C. Williams

III Other Countries’ Perspectives

6 Opting Out of the Great Inflation

Andreas Beyer is principal economist at the European Central Bank. Vitor Gaspar is special adviser at the Bank of Portugal. Christina Gerberding is a senior economist in the Monetary Policy and Analysis Division at Deutsche Bundesbank. Otmar Issing is honorary professor and president of the Center for Financial Studies at the University of Frankfurt. Chapter prepared for the National Bureau of Economic Research, the Great Inflation conference, Woodstock, Vermont, September 25–27, 2008. The views expressed in this chapter do not necessarily reflect those of the European Central Bank (ECB) or the Eurosystem. We thank Edward Nelson and Athanasios Orphanides for sharing their real-time output gap data with us. Furthermore, we thank our discussant Benjamin Friedman for his challenging and thought-provoking comments. We are also grateful to Michael Bordo, Vitor Constancio, Gabriel Fagan, Dieter Gerdesmeier, Alfred Guender, Lars Jonung, Athanasios Orphanides, Werner Roeger, Franz Seitz, Ulf Söderström, Lars Svensson, Guntram Wolff, Andreas Worms, and Charles Wyplosz for insightful discussions and their valuable suggestions. We also wish to thank participants of a seminar held by the Eurosystem’s MPC and participants of the NBER conference at Woodstock for their comments that helped improve an earlier draft of this chapter. Last but not least we would like to express our gratitude to Aurelie Therace for her efficient help in preparing the final manuscript. For acknowledgments, sources of research support, and disclosure of the authors’ material financial relationships, if any, please see http://www.nber.org%20/%20chapters%20/%20c9158.ack. Andreas Beyer Vitor Gaspar Christina Gerberding Otmar Issing

7 Great Inflation and Central Bank Independence in Japan

Takatoshi Ito

8 The Great Inflation in the United States and the United Kingdom

Riccardo DiCecio and Edward Nelson Riccardo DiCecio is an economist and special assistant to the president of the Federal Reserve Bank of St. Louis. Edward Nelson is chief of the Monetary Studies Section of the Federal Reserve Board. An earlier version of this chapter was presented at the NBER Great Inflation conference, Woodstock, Vermont, September 25–27, 2008. We thank Frank Smets and Rafael Wouters for providing the estimation code for Smets and Wouters (2007). We are grateful to Michael Bordo and Athanasios Orphanides (the conference organizers and volume editors), Matthew Shapiro (our discussant), and conference and preconference attendees for comments on the previous versions of this chapter. We are also indebted to Leon Berkelmans, Christopher Erceg, Jesper Lindé, Andrew Levin, Christopher Neely, Ricardo Nunes, Christina Romer, David Wheelock, seminar participants at the Federal Reserve Board, and an anonymous referee for many useful suggestions. Charles Gascon, Luke Shimek, and Faith Weller provided research assistance. The views expressed in this chapter are those of the authors and should not be interpreted as those of the Federal Reserve Bank of St. Louis, the Federal Reserve System, or the Board of Governors. For acknowledgments, sources of research support, and disclosure of the authors’ material financial relationships, if any, please see http://www.nber.org/chapters/c9172.ack.

IV International Perspectives

9 Bretton Woods and the Great Inflation

Michael D. Bordo and Barry Eichengreen

Panel Session II Lessons from History

Lessons from History

Donald L. Kohn

The Great Inflation Lessons for Central Banks

Lucas Papademos

Understanding Inflation Lessons of the Past for the Future

Harold James