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  •  The Great Inflation: Oil Shocks or Govt Beliefs (2+ / 0-)
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    psyched, Letsgetitdone

    You might find this paper interesting - The Great Inflation: Oil Shocks or Government Beliefs?

    The precise cause of the Great Inflation of the 1970s is still a very open issue in macroeconomics, with support for stories based around both oil shocks and the evolution of beliefs as the government discovered and subsequently abandoned the Phillips curve. In this paper, we tackle the thorny identification issue of distinguishing between competing theories, building a structural model that explicitly models the interactions between oil price shocks and government beliefs. We estimate the model using Bayesian techniques for the period 1960-2003, and find support for oil price shocks playing a role in the Great Inflation both directly and indirectly through their impact on government beliefs.

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