The Supply-Shock Explanation of the Great Stagflation Revisited

Alan Blinder and Jeremy B. Rudd

No 14563, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: U.S. inflation data exhibit two notable spikes into the double-digit range in 1973-1974 and again in 1978-1980. The well-known "supply-shock" explanation attributes both spikes to large food and energy shocks plus, in the case of 1973-1974, the removal of price controls. Yet critics of this explanation have (a) attributed the surges in inflation to monetary policy and (b) pointed to the far smaller impacts of more recent oil shocks as evidence against the supply-shock explanation. This paper reexamines the impacts of the supply shocks of the 1970s in the light of the new data, new events, new theories, and new econometric studies that have accumulated over the past quarter century. We find that the classic supply-shock explanation holds up very well; in particular, neither data revisions nor updated econometric estimates substantially change the evaluations of the 1972-1983 period that were made 25 years (or more) ago. We also rebut several variants of the claim that monetary policy, rather than supply shocks, was really to blame for the inflation spikes. Finally, we examine several changes in the economy that may explain why the impacts of oil shocks are so much smaller now than they were in the 1970s.

JEL-codes: E3 N1 (search for similar items in EconPapers)
Date: 2008-12
New Economics Papers: this item is included in nep-cba, nep-his and nep-mac
Note: DAE EFG
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (38)

Published as The Supply-Shock Explanation of the Great Stagflation Revisited , Alan S. Blinder, Jeremy B. Rudd. in The Great Inflation: The Rebirth of Modern Central Banking , Bordo and Orphanides. 2013

Downloads: (external link)
http://www.nber.org/papers/w14563.pdf (application/pdf)

Related works:
Chapter: The Supply-Shock Explanation of the Great Stagflation Revisited (2013)
Working Paper: The Supply Shock Explanation of the Great Stagflation Revisited (2008)
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:nbr:nberwo:14563

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w14563

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().