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Working Paper

Even Keel and the Great Inflation

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During the early part of the Great Inflation (1965-1975), the Federal Reserve undertook even-keel operations to assist the US Treasury’s coupon security sales. Accordingly, the central bank delayed any tightening of monetary policy and permanently injected reserves into the banking system. Using real-time Taylor-type and McCallum-like reaction functions, we show that the Fed routinely undertook these operations only when it was otherwise tightening monetary policy. Using a quantity-equation framework, we show that the Federal Reserve’s even-keel actions added approximately one percentage point to the overall 5.1 percent average annual inflation rate over these years.
Topics
Monetary policy
10.23.2020ISSN 2573-7953 WP 20-33DOI 10.26509/frbc-wp-202033
Keywords even keel, great inflation, federal reserve, us treasury
JEL Classification Codes E5, N1, F3

Working Papers of the Federal Reserve Bank of Cleveland are preliminary materials circulated to stimulate discussion and critical comment on research in progress. They may not have been subject to the formal editorial review accorded official Federal Reserve Bank of Cleveland publications. The views expressed in this paper are those of the authors and do not represent the views of the Federal Reserve Bank of Cleveland or the Federal Reserve System.

Suggested Citation

Consolvo, Victoria, Owen F. Humpage, and Sanchita Mukherjee. 2020. “Even Keel and the Great Inflation.” Federal Reserve Bank of Cleveland, Working Paper No. 20-33. https://doi.org/10.26509/frbc-wp-202033