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Working Paper

Even Keel and the Great Inflation

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.

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.