Under Paul Volcker, central banks acquired a reputation for being able to control inflation. But is this reputation deserved? The story economists tell is the Volcker Fed raised interest rates to snuff out inflation. As a result of raising rates, unemployment skyrocketed and the economy slid into a recession. The decline in employment lead to a decline in wage increases. This in turn deprived inflation of the fuel it needed for additional inflation. So the conclusion for economists is central banks know how to end inflation by simply raising rates.
Can Central Banks Control Inflation?
Can Central Banks Control Inflation?
Can Central Banks Control Inflation?
Under Paul Volcker, central banks acquired a reputation for being able to control inflation. But is this reputation deserved? The story economists tell is the Volcker Fed raised interest rates to snuff out inflation. As a result of raising rates, unemployment skyrocketed and the economy slid into a recession. The decline in employment lead to a decline in wage increases. This in turn deprived inflation of the fuel it needed for additional inflation. So the conclusion for economists is central banks know how to end inflation by simply raising rates.