Working Paper: CEPR ID: DP6156
Authors: Edward Nelson
Abstract: This paper considers the Great Inflation of the 1970s in Japan and Germany. From 1975 onward these countries had low inflation relative to other large economies. Traditionally, this success is attributed to stronger discipline on the part of Japan and Germany?s monetary authorities - for example, more willingness to accept temporary unemployment, or stronger determination not to monetize government deficits. I instead attribute the success of these countries from the mid-1970s to their governments? and monetary authorities? acceptance that inflation is a monetary phenomenon. Their higher inflation in the first half of the 1970s is attributable to the fact that their policymakers over this period embraced non-monetary theories of inflation.
Keywords: Germany; Great Inflation; Incomes Policy; Japan; Monetary Targeting
JEL Codes: E52; E58; E64; E65
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| misattribution of inflation (E31) | ineffective monetary policy responses (E65) |
| ineffective monetary policy responses (E65) | higher inflation rates (E31) |
| shift in policymakers' understanding (E65) | successful disinflation process (E31) |
| acceptance of monetary theories (E42) | effective policy measures (F68) |
| effective policy measures (F68) | reduce inflation (E31) |
| resistance to non-monetary views (E49) | relatively better inflation outcomes (E31) |