The Incredible Volcker Disinflation / Marvin Goodfriend, Robert King.

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Goodfriend, Marvin

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Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w11562.Publication details: Cambridge, Mass. National Bureau of Economic Research 2005.Description: 1 online resource: illustrations (black and white)Subject(s):

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Abstract: 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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Previous	nber w1156 The Economics of Price Scissors /	nber w11560 Borrowing Constraints and Consumption Behavior in Japan /	nber w11561 Is Academic Science Driving a Surge in Industrial Innovation? Evidence from Patent Citations /	nber w11562 The Incredible Volcker Disinflation /	nber w11563 From World Banker to World Venture Capitalist: US External Adjustment and the Exorbitant Privilege /	nber w11564 The Returns on Human Capital: Good News on Wall Street is Bad News on Main Street /	nber w11565 Collateral Damage: Trade Disruption and the Economic Impact of War /	Next

August 2005.

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.