"Despite the cacophony of complaints about "ruinous" budget deficits and "excessive" monetary growth, the headline-grabbing double-digit inflations of 1974 and

"Despite the cacophony of complaints about "ruinous" budget deficits and "excessive" monetary growth, the headline-grabbing double-digit inflations of 1974 and 1979-80 were mainly of the special-factor variety. Only a minor fraction of each inflationary acceleration can be attributed to changes in the baseline rate; the rest came from supply shocks from the food and energy sectors, from mortgage interest rates, and from the end of price controls—a whole host of special one-shot factors. It is precisely this aspect of the recent inflation that this paper seeks to document. Since the paper focuses on the special factors to the exclusion of the baseline rate, it is worth pointing out at the outset that the two inflations are not really independent. Inflation from special factors can "get into" the baseline rate if it causes an acceleration of wage growth. At this point policymakers face an agonizing choice—the so-called accommodation issue. To the extent that aggregate nominal demand is not expanded to accommodate the higher wages and prices, unemployment and slack capacity will result. There will be a recession. On the other hand, to the extent that aggregate demand is expanded (say, by raising the growth rate of money above previous targets), inflation from the special factor will get built into the baseline rate." This is the difference between the responses to 2008 and 2020. The first was exactly the first example from the paper, and the second is the latter (expansion of demand capacity). https://www.nber.org/system/files/chapters/c11462/c11462.pdf https://www.nber.org/system/files/chapters/c11462/c11462.pdf