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Finance and Economics Discussion Series
Finance and Economics Discussion Series logo links to FEDS home page Monetary Policy Rules and the Great Inflation
Athanasios Orphanides

Abstract: The nature of monetary policy during the 1970s is evaluated through the lens of a forward-looking Taylor rule based on perceptions regarding the outlook for inflation and unemployment at the time policy decisions were made. The evidence suggests that policy during the 1970s was essentially indistinguishable from a systematic, activist, forward-looking approach such as is often identified with good policy advice in theoretical and econometric policy evaluation research. This points to the unpleasant possibility that the policy errors of the 1970s occured despite the use of a seemingly desirable policy approach. Though the resulting activist policies could have appeared highly promising, they proved, in retrospect, counterproductive.

Keywords: Monetary policy rules, inflation, unemployment, Greenbook forecasts

Full paper (81 KB PDF) | Full paper (378 KB Postscript)

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Last update: January 28, 2002