May 2005 issue contents
Monetary Policy Neglect and the Great Inflation in Canada, Australia, and New Zealand - IJCB - May 2005

by Edward Nelson
Federal Reserve Bank of St. Louis


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.

JEL Codes: E31, E52, E58, E64

Full article (PDF, 47 pages 505 kb)