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

James Bullard () and Stefano Eusepi ()

No 2003-013, Working Papers from Federal Reserve Bank of St. Louis

Abstract: We study the hypothesis that misperceptions of trend productivity growth during the onset of the productivity slowdown in the U.S. caused much of the great inflation of the 1970s. We use the general equilibrium, sticky price framework of Woodford (2003), augmented with learning using the techniques of Evans and Honkapohja (2001). We allow for endogenous investment as well as explicit, exogenous growth in productivity and the labor input. We assume the monetary policymaker is committed to using a Taylortype policy rule. We study how this economy reacts to an unexpected change in the trend productivity growth rate under learning. We find that a substantial portion of the observed increase in inflation during the 1970s can be attributed to this source.

Keywords: Monetary policy; Productivity (search for similar items in EconPapers)
Date: Written 2004
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Published in Review of Economic Dynamics, April 2005, 8(2), pp. 324-59

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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? (2003)
Journal Article: Did the Great Inflation Occur Despite Policymaker Commitment to a Taylor Rule? (2005)
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