ECB paper examines pre-Volcker monetary policy
A working paper, published by the European Central Bank (ECB) on May 25, examines monetary policy in the era before the governorship of Paul Volcker and the ‘Great Inflation'.
The authors, Florin Bilbiie and Roland Straub, use a dynamic general equilibrium model that focuses on asset market participation rather than policy mistakes by the Federal Reserve in the pre-Volcker era. They find evidence that changes in inflation outcomes in the two eras can be explained by increased asset market participation as a result of deregulation and financial innovation in the early 1980s.
While emphasising that other studies of the Great Inflation make important contributions, the authors add: "Our explanation captures some features that other theories by themselves do not."
Click here to read the paper.
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