Did the Great Inflation occur despite policymaker commitment to a Taylor rule?

James Bullard () and Stefano Eusepi ()

No 2003-20, Working Paper from Federal Reserve Bank of Atlanta

Abstract: The authors study the hypothesis that misperceptions of trend productivity growth during the onset of the productivity slowdown in the United States caused much of the great inflation of the 1970s. They use the general equilibrium, sticky price framework of Woodford (2002), augmented with learning using the techniques of Evans and Honkapohja (2001). The authors allow for endogenous investment as well as explicit, exogenous growth in productivity and the labor input. They assume the monetary policymaker is committed to using a Taylor-type policy rule. The authors study how this economy reacts to an unexpected change in the trend productivity growth rate under learning. They find that a substantial portion of the observed increase in inflation during the 1970s can be attributed to this source.

Keywords: Equilibrium (Economics); Monetary policy; Macroeconomics; Inflation (Finance); Productivity (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge, nep-his and nep-mon
Date: 2003
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Related works:
Working Paper: Did the Great Inflation Occur Despite Policymaker Commitment to a Taylor Rule? (2003)
Working Paper: Did the Great Inflation occur despite policymaker commitment to a Taylor rule? (2004)
Journal Article: Did the Great Inflation Occur Despite Policymaker Commitment to a Taylor Rule? (2005)
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