Today's global economy, with most developed nations experiencing very low inflation, seems a world apart from the "Great Inflation" that spanned the late 1960s to early 1980s. Yet, in this book, Brigitte Granville makes the case that monetary economists and policymakers need to keep the lessons learned during that period very much in mind, lest we return to them by making the same mistakes we made in the past.
Granville details the advances in macroeconomic thinking that gave rise to the "Great Moderation"--a period of stable inflation and economic growth, which lasted from the mid-1980s through the most recent financial crisis. She makes the case that the central banks' management of monetary policy--hinging on expectations and credibility--brought about this period of stability, and traces the roots of this success back to the eighteenth-century foundations of modern monetary thought.
Tackling fundamental questions such as the causes of inflation and its relation to unemployment and growth, the natural rate of inflation hypothesis, the fiscal theory of the price level, and the proper goals of central banks, the book aims above all to demonstrate the dangers of forgetting the role of credibility in establishing sound monetary policy. With the lessons of the past firmly in mind, Granville presents stimulating ideas and proposals about inflation-targeting principles, which provide tools for present-day monetary authorities dealing with the forces of globalization, mercantilism, and reserve accumulation.
"[A] highly informative, well-written volume."--Choice
"Granville presents stimulating ideas and proposals about inflation-targeting principles, which provide tools for present-day monetary authorities dealing with the forces of globalization, mercantilism, and reserve accumulation."--World Book Industry
"[A]ny economist with an interest in inflation and in the theory and practice of monetary policy more generally would do quite well to read carefully the excellent study that Brigitte Granville has given us."--Peter N. Ireland, Journal of Economic Literature
"Brigitte Granville has written a spirited and learned defense of how macroeconomic ideas can defeat inflation with sound monetary policy and inflation targeting. The success of these ideas is evident in persistently low inflationary expectations, which are now taken for granted. Yet Granville warns that monetary policy must not be overloaded because then its credibility may be undermined. Hers is a wonderfully and enlighteningly fresh look at inflation."--Anders Åslund, senior fellow, Peterson Institute for International Economics
"Granville recalls the inflation of the 1970s, which, she fears, is in danger of being forgotten in the wake of the recent financial crisis and the ongoing recession. She covers a wide swath of macroeconomics and takes in the causes of inflation, the relation between unemployment and inflation, the Phillips curve, the role of expectations, and much more. I don't know of any other book quite like this."--John Driffill, Birkbeck, University of London
"Granville has read almost everything and has a good eye for the central issues. I liked this book very much."--Thomas J. Sargent, Nobel Laureate in Economics
Table of Contents:
Chapter 1 The End of a Mirage
More Money Increases Inflation but Not Employment 1
Chapter 2 Origins of Inflation
Monetary, Fiscal, and Financial Links 33
Chapter 3 Ending Inflation Without Prolonged Recession
Introducing Credibility 54
Chapter 4 The Coordination of Monetary and Fiscal Policy 93
Chapter 5 Who Is Voting for Low Inflation and Why? 125
Chapter 6 Monetary and Financial Stability
Conflict or Complementarity 154
Chapter 7 Inflation in an Open World
Does That Change the Rules? 186
Adapting to Expectations 214