US Monetary Policy Not Destabilizing in 1970s, New Study Finds.
The study looked at whether US monetary policy caused instability in the 1970s. They used a model with inflation, commodity price shocks, and slow wage growth. The findings show that wages were inflexible, and the Federal Reserve reacted strongly to inflation but not much to economic output. With real imperfections and commodity shocks, the data supports a specific economic model: monetary policy did not create instability before Volcker's time.