The Origin and Persistence of Inflation: Insights from History
This article reviews some of the main economic ideas on inflation and relates them to historical events. We show that the period from the 15th to the 20th century was not a long triumphal road for quantitative theory. A study of the 20th century suggests that inflation can be the consequence of wars, of price controls in times of crisis, or distributional conflicts in society. In addition, we focus on some stylized facts, such as the significance of anchoring household expectations or the impact of fiscal policy. Finally, we underline the failure of current macroeconomic theory to understand the origins and the persistence of inflation.
Inflation is challenging to handle. Studying history over the long term reveals that price stability is a relatively rare occurrence for nations. Periods of price increases were already observed in ancient Roman times, during the feudal era, and the 16th century. So few things are as commonplace as inflation. At the same time, it is difficult to find a more fiercely debated topic in the annals of economic thought. All the great economists have tried their hand – Marx, Keynes, Lucas, and Friedman, etc. Because inflation encompasses nearly every facet of macroeconomics. The role of economic policy and central banks, negotiations between employees and employers, the nature of money, the impact of imbalances, and the role of agents' expectations are all factors that have been cited to explain inflationary phenomena.Economics textbooks often…