'Muddling through or tunnelling through?’ UK monetary and fiscal exceptionalism and the Great Inflation

Micheal Bordo, Oliver Bush and Ryland Thomas
Additional contact information
Micheal Bordo: Rutgers University
Oliver Bush: Bank of England
Ryland Thomas: Bank of England

No 1135, Bank of England Staff Working Paper series from Bank of England

Abstract: Discussion of the causes of the Great Inflation in the UK during the 1970s has centred around the relative importance of ‘bad luck’ – the occurrence of unusually large commodity price and supply-side shocks – and ‘bad policy’ reflecting failures in both monetary and prices and incomes policies. By reconsidering the historical and empirical record of inflation from 1950s to the early 1990s we show that the persistence of the Great Inflation in the UK cannot fully be explained by these factors, although these can account for some of the major fluctuations. Instead, underlying inflation and inflation expectations appear to be the result of a sequence of regime shifts. We argue those regime shifts are as much related to fundamental changes in fiscal policy as they are to monetary policy and union reforms. Our empirical evidence suggests that fiscal policy was at the heart of many of the problems in the UK during the Great Inflation. In contrast to most of British history, it was not used to stabilise the public finances. Instead, it was used to keep unemployment down and growth up, to subsidise losers from terms of trade shocks and to secure deals with the unions.

Keywords: Great Inflation; fiscal policy; inflation expectations; money growth (search for similar items in EconPapers)
JEL-codes: E4 E6 N10 (search for similar items in EconPapers)
Pages: 87
Date: 2025-07-04
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.bankofengland.co.uk/-/media/boe/files/ ... -great-inflation.pdf

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:boe:boeewp:023257

Access Statistics for this paper

More papers in Bank of England Staff Working Paper series from Bank of England Bank of England, Threadneedle Street, London, EC2R 8AH. Contact information at EDIRC.
Bibliographic data for series maintained by Research ().