Monetary Policy Neglect and the Great Inflation in Canada, Australia, and New Zealand

FRB of St. Louis Working Paper No. 2004-008A

54 Pages Posted: 29 Jul 2005

See all articles by Edward Nelson

Edward Nelson

Board of Governors of the Federal Reserve System

Date Written: April 2004

Abstract

This paper studies the Great Inflation in Canada, Australia, and New Zealand. Newspaper coverage and policymakers' statements are used to analyze the views on the inflation process that led to the 1970s macroeconomic policies, and the different movement in each country away from 1970s views. I argue that to understand the course of policy in each country, it is crucial to use the monetary policy neglect hypothesis, which claims that the Great Inflation occurred because policymakers delegated inflation control to nonmonetary devices. This hypothesis helps explain why, unlike Canada, Australia and New Zealand continued to suffer high inflation in the mid-1980s. The delayed disinflation in these countries reflected the continuing importance accorded to nonmonetary views of inflation.

Keywords: Great inflation, monetary policy, Canada, Australia, New Zealand

JEL Classification: E31, E52, E58, E64

Suggested Citation

Nelson, Edward, Monetary Policy Neglect and the Great Inflation in Canada, Australia, and New Zealand (April 2004). FRB of St. Louis Working Paper No. 2004-008A, Available at SSRN: https://ssrn.com/abstract=762585 or http://dx.doi.org/10.2139/ssrn.762585

Edward Nelson (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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