![]() It eventually declined to average only 3.5 percent in the latter half of the 1980s. ![]() Inflation began ratcheting upward in the mid-1960s and reached more than 14 percent in 1980. It had been in this vicinity over the preceding six years. In 1964, inflation measured a little more than 1 percent per year. If the Great Inflation was a consequence of a great failure of American macroeconomic policy, its conquest should be counted as a triumph. It was, according to one prominent economist, “the greatest failure of American macroeconomic policy in the postwar period” (Siegel 1994).īut that failure also brought a transformative change in macroeconomic theory and, ultimately, the rules that today guide the monetary policies of the Federal Reserve and other central banks around the world. Over the nearly two decades it lasted, the global monetary system established during World War II was abandoned, there were four economic recessions, two severe energy shortages, and the unprecedented peacetime implementation of wage and price controls. The Great Inflation was the defining macroeconomic event of the second half of the twentieth century. From High Inflation to Inflation Targeting-The Conquest of US Inflation.The Opportunity: Fiscal Imbalances, Energy Shortages, and Bad Data.The Means: The Collapse of Bretton Woods.The Motive: The Phillips Curve and the Pursuit of Full Employment.
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