Would the Bundesbank Have Prevented the Great Inflation in the United States?

33 Pages Posted: 15 Dec 2009

See all articles by Luca Benati

Luca Benati

European Central Bank (ECB)

Date Written: December 11, 2009

Abstract

Policy counterfactuals based on estimated structural VARs routinely suggest that bringing Alan Greenspan back in the 1970s’ United States would not have prevented the Great Inflation. We show that a standard policy counterfactual suggests that the Bundesbank – which is near-universally credited for sparing West Germany the Great Inflation – would also not have been able to prevent the Great Inflation in the United States. The sheer implausibility of this result sounds a cautionary note on taking the outcome of SVAR-based policy counterfactuals at face value, and raises questions on the very reliability of such exercises.

Keywords: Bayesian VARs, time-varying parameters, stochastic volatility, identified VARs, Great Inflation, policy counterfactuals

JEL Classification: E32, E47, E52, E58

Suggested Citation

Benati, Luca, Would the Bundesbank Have Prevented the Great Inflation in the United States? (December 11, 2009). ECB Working Paper No. 1134. Available at SSRN: https://ssrn.com/abstract=1521405

Luca Benati (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

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