Expansion Killed the Price Stability: Simple Statistics on US Monetary Policy and the Great Inflation

Abstract

The Great Inflation was America's most recent bout of permanent excessive price level growth. I review the literature on the subject and construct a model of inflation during the period synthesized from the Phillips Curve and Quantity Theory of Money. I then run regressions to evaluate the relationship between money and inflation during the period. I then test my model, finding money growth to be the most explanatory factor of inflation during the period, or that expansion killed the price stability. Lastly, I conclude with recommendations for future research.