NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

The Incredible Volcker Disinflation

Marvin Goodfriend, Robert King

NBER Working Paper No. 11562
Issued in August 2005
NBER Program(s):   EFG   ME

Using a simple modern macroeconomic model, we argue that the real effects of the Volcker disinflation in the early 1980s were mainly due to imperfect credibility, evident in volatility and stubbornness of long-term interest rates. Studying recently released transcripts of the Federal Open Market Committee, we find -- to our surprise -- that Volcker and other FOMC members also regarded long-term interest rates as key indicators of inflation expectations and of their disinflationary policy's credibility. We also consider the interplay of monetary targets, operating procedures, and credibility during the Volcker disinflation.

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Document Object Identifier (DOI): 10.3386/w11562

Published: Goodfriend, Marvin and Robert G. King. "The Incredible Volcker Disinflation," Journal of Monetary Economics, 2005, v52(5,Jul), 981-1015.

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