TY  - JOUR
AU  - Poole, William
AU  - Rasche, Robert H
AU  - Wheelock, David C
TI  - The Great Inflation: Did the Shadow Know Better?
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 16910
PY  - 2011
Y2  - March 2011
DO  - 10.3386/w16910
UR  - http://www.nber.org/papers/w16910
L1  - http://www.nber.org/papers/w16910.pdf
N1  - Author contact info:
William Poole
Federal Reserve Bank of St. Louis
411 Locust Street
St. Louis, MO  63102
Tel: 314-444-8301
E-Mail: gswpoole@sprintmail.com

Robert H. Rasche
Federal Reserve Bank of St. Louis
14531 Radcliffeborough Ct
Chesterfield, MO  63017-5626
E-Mail: rasche@msu.edu

David C. Wheelock
Research Division
Federal Reserve Bank of St. Louis
P.O. Box 442
St. Louis, MO 63166-0442
Tel: (314) 444-8570
Fax: (314) 444-8731
E-Mail: david.c.wheelock@stls.frb.org
M1  - published as William Poole, Robert H. Rasche, David C. Wheelock. "The Great Inflation: Did The Shadow Know Better?," in Michael D. Bordo and Athanasios Orphanides, editors, "The Great Inflation: The Rebirth of Modern Central Banking" University of Chicago Press (2013)

M3  - presented at "The Great Inflation Conference", September 25-27, 2008
AB  - The Shadow Open Market Committee was formed in 1973 in response to rising inflation and the apparent unwillingness of U.S. policymakers to implement policies necessary to maintain price stability. This paper describes how the Committee's policy views differed from those of most Federal Reserve officials and many academic economists at the time.  The Shadow argued that price stability should be the primary goal of monetary policy and favored gradual adjustment of monetary growth to a rate consistent with price stability.  This paper evaluates the Shadow's policy rule in the context of the New Keynesian macroeconomic model of Clarida, Gali, and Gertler (1999). Simulations of the model suggest that the gradual stabilization of monetary growth favored by the Shadow would have lowered inflation with less impact on output growth and less variability in inflation or output than a one-time reduction in monetary growth. We conclude that the Shadow articulated a policy that would have outperformed the policies actually implemented by the Federal Reserve during the Great Inflation era.
ER  -