Abstract
In October 1979, the U.S. Federal Reserve initiated a program of severe monetary restraint. The federal funds rate soared 2.3 points, and the rates of growth of the major monetary aggregates fell dramatically. This policy was presumably caused by a variety of factors: inflation was at double-digit rates, unit labor costs were rising at an annual rate of 13 percent, and real unit labor costs were increasing rapidly as well. On the international side, the value of the dollar was steadily deteriorating, and the current account was strongly in deficit. Given these developments it is not surprising that the Federal Reserve chose this time to undertake a program of restraint. What is surprising, however, is that nearly four years later the economy was still in the recession, or by that time depression, which had been triggered by the Fed.1
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Schor, J.B. (1985). Wage Flexibility, Social Welfare Expenditures, and Monetary Restrictiveness. In: Jarsulic, M. (eds) Money and Macro Policy. Recent Economic Thought Series, vol 5. Springer, Dordrecht. https://doi.org/10.1007/978-94-015-7715-1_7
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DOI: https://doi.org/10.1007/978-94-015-7715-1_7
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