Board of Governors of the
Federal Reserve System
20th and C Streets NW, Stop 61
Washington, DC 20551
NBER Working Papers and Publications
|July 2012||The Supply-Shock Explanation of the Great Stagflation Revisited|
with Alan S. Blinder
in The Great Inflation: The Rebirth of Modern Central Banking, Michael D. Bordo and Athanasios Orphanides, editors
Previous studies have concluded that the two OPEC shocks, the two roughly contemporaneous food price shocks, and the removal of wage-price controls in 1973-1974 played key roles in the macroeconomic events which constituted the Great Stagflation. This chapter reexamines the supply-shock explanation in the light of new facts, new models, and new econometric findings, and shows that the "old-fashioned" supply-shock explanation holds up quite well. It is organized as follows. Section 2.2 outlines and slightly modernizes the basic conceptual framework, reexamining it in the light of much new theory and many new empirical findings, while Section 2.3 takes a fresh look at the evidence on the Great Inflation in the United States, once again using new data, new theory, and new econometric findings...
|December 2008||The Supply-Shock Explanation of the Great Stagflation Revisited|
with Alan S. Blinder: w14563
U.S. inflation data exhibit two notable spikes into the double-digit range in 1973-1974 and again in 1978-1980. The well-known "supply-shock" explanation attributes both spikes to large food and energy shocks plus, in the case of 1973-1974, the removal of price controls. Yet critics of this explanation have (a) attributed the surges in inflation to monetary policy and (b) pointed to the far smaller impacts of more recent oil shocks as evidence against the supply-shock explanation. This paper reexamines the impacts of the supply shocks of the 1970s in the light of the new data, new events, new theories, and new econometric studies that have accumulated over the past quarter century. We find that the classic supply-shock explanation holds up very well; in particular, neither data revisio...