The ECB and the Inflation Monsters: Strategic Framing and the Responsibility Imperative (1998-2023)

The recent resurgence of inflation in Europe has led the ECB to increase interest rates and phase out asset purchase programs designed to address the effects of the Great Financial Crisis. This article investigates how the ECB adjusts its logic of responsibility throughout this series of crises. Using a topic model and in-depth analysis of speeches, we examine the ECB's strategic framing of linkages related to inflation during three historical periods: the Central Bank Independence (CBI) era (1998-2011), the secular stagnation era (2011-2021), and the new inflation era (2021-). Our findings indicate that modifications made to the CBI's linkages during the secular stagnation era shaped the ECB's framing of the new inflation era in a novel way. However, despite acknowledging difficult policy tradeoffs, which they used to downplay in the past, ECB policymakers have continued to reframe its initial imperative of responsibility in the hope of avoiding policy discussions on regime change.

An Independent European Macroeconomics? A History of European Macroeconomics through the Lens of the European Economic Review

Economics in Europe has encountered a process of internationalisation since the 1970s. To a certain extent, this internationalisation is also an ‘Americanisation’ and many European departments and economics have adopted the standards of US economics, notably mathematical modelling, the use of econometrics, and the neoclassical theory as a modelling benchmark. Regarding this process, we can wonder if European economics has just been mimicking US economics since the 1970s, or if some European specialities have survived or emerged.

Six Decades of Economic Research at the Bank of England

This paper discusses the transformation of the content, role, and status of economic research at the Bank of England (BoE) in the past 60 years. We show how three factors (policy functions and missions of the Bank, its organisational structure, and the attitude of its executives towards economics) shaped the evolution of in-house BoE economic research during three distinctive periods (1960-1991; 1992-2007; 2007 - 2020). Our account relies on a broad set of sources and methods (BoE publications, archives, interviews with current and former BoE economists, citation analysis, prosopography, and topic modelling).

From the Stagflation to the Great Inflation: Explaining the US economy of the 1970s

This article proposes a history of the evolution of macroeconomists’ explanations of the 1970s US stagflation, from 1975 to 2013. Using qualitative and quantitative methods, 1) I observe the different types of explanations coexisting at different periods ; 2) I assess which was the dominant type of explanations for each period ; and 3) I identify the main sources of influence for the different types of explanation. In the late 1970s and early 1980s, supply-shocks and inflation inertia were fundamental concepts to explain stagflation. The interest on this topic progressively vanished after 1985. In the 1990s, it was a totally new literature which emerged almost without any reference to past explanations. This literature focused on the role played by monetary policy in the late 1960s and the 1970s to account for the rise of inflation. New Classical economists’ contributions, like Lucas (1976), Kydland and Prescott (1977) or Barro and Gordon (1983a), which were ignored by stagflation explanations in the 1970s/1980s, became major references to account for the 1970s stagflation in the 1990s.

European Economics and the Early Years of the International Seminar on Macroeconomics

The International Seminar on Macroeconomics (ISoM) is an annual conference, which was co-sponsored during 15 years (1978-1993) by the French EHESS and the NBER. This article uncovers the scientific and institutional dynamics unrolling from this cooperation. We argue that macroeconomists gathered by the ISoM contributed greatly to the making of a European network of economists sharing similar professional and intellectual standards. We illustrate how the ISoM stood at the crossroad of two types of ‘internationalisation’ of economics: the integration of European national communitiesand the process of ‘Americanisation’ of economics. While existing literature on ‘internationalisation’ focuses on the national level, our contribution investigates the European level. Moreover, we unveil how two research programmes in macroeconomics (namely the disequilibrium theory and large-scale macroeconometric modelling) played a significant role in this process.

How the Phillips Curve Shaped Full Employment Policy in the 1970s: the Debates on the Humphrey-Hawkins Act

This article relates the history of economists' influence in shaping the content of the Humphrey-Hawkins Act (1978) and its immediate consequences. The act committed the federal government to reducing unemployment to 4 percent and inflation to 3 percent as soon as 1983. Initially, the Humphrey-Hawkins bill was conceived as a project to favor the economic integration of African Americans and economic planning and targeted only the unemployment rate. Republican senators successfully pushed for adding a numerical inflation target during the debates in Congress. The act eventually put on equal footing inflation and unemployment. This article argues that the economists in the Carter administration, and notably the Council of Economic Advisers, were instrumental, even if unintentionally, in favoring the integration of an inflation target and such an interpretation of the bill. In the negotiations that opposed them to the supporters of the bill, as well as in the analysis of the bill they produced, they insisted on the existence of a trade-off between inflation and unemployment and referred frequently to the famous Phillips curve. They endeavored to anchor their expertise on academic publications, which strengthened the role of the Phillips curve in shaping the debates. Business organizations and senators used references to the trade-off to undermine the bill and favor the integration of an inflation target.

An Agenda without a Plan. Robert E. Lucas's Trajectory through the Public Debate

This article explores Robert E. Lucas’s policy agenda and his engagement with the public debate between the 1970s and early 1980s. It investigates how he interacted with the public debate by envisioning key principles of his macroeconomic theory and methodology, and how he promoted his policy agenda. An exploration of Lucas’s personal and professional archives sheds light on his participation in policy debates after the publication of his works, illustrating how Lucas built a discreet and cautious way of engaging with the public. Lucas did not propose a detailed program to implement his policy agenda, nor was he actively promoting his policy agenda. The article suggests that Lucas’s originality compared to his contemporaries was his belief on the ability of macroeconomics to scientifically devise binding policy rules that could be integrated in an economic constitution.

Reacting to the Lucas Critique: The Keynesians' Replies

In 1976, Robert Lucas explicitly criticized Keynesian macroeconometric models for their inability to correctly predict the effects of alternative economic policies. Today, most contemporary macroeconomists and some historians of economics consider that Lucas’s critique led forcefully to an immediate disqualification of the Keynesian macroeconometric approach. This narrative is based on the interpretation of the Lucas critique as a fundamental principle for economic reasoning that was (and still is) logically unquestionable. We consider that this narrative is problematic both in terms of historiography and the effects that it can have in the field as a way of assigning importance and credit to particular macroeconomists. Indeed, the point of view of the Keynesian economists is missing despite the fact that they were the target of Lucas’s paper and that throughout the 1970s and 1980s they produced a fierce reaction against it. In this article we analyze the reactions by a broad set of authors (which we label “Keynesians”) that disputed the relevance of the critique. In spite of their diversity in methodological, theoretical, and policy issues, these reactions were characterized by their common questioning of the empirical and practical relevance of the Lucas critique.

Robert J. Gordon and the Introduction of the Natural Rate Hypothesis in the Keynesian Framework

This article studies the dissemination of the Natural Rate of Unemployment Hypothesis (NRH) in macroeconomics during the 1970s, by studying the reaction of Robert J. Gordon to the argument of Friedman (1968). In the early 1970s, Gordon opposed the NRH, arguing that the estimated parameter on expected inflation was below one. Confronting to new data and to rising inflation, Gordon adopted the NRH after 1973. Nevertheless, the adoption anticipated any clear empirical proof. We explain that this conversion was due to Friedman’s influence on Gordon, but also to the fact it did not prevent Gordon to support active stabilization policies.

Thomas Sargent face à Robert Lucas : une autre ambition pour la Nouvelle Economie Classique

The article shows that Sargent’s macroeconomic vision differs from Lucas' one. For the latter, the assumptions of a model are “un-realistic”, i.e., the model does not aim to represent reality. It is a simulation tool that allows the assessment of different economic policies. The “Lucasian” ideal is a macroeconomist, who is therefore destined to become an engineer in charge of providing public authorities with an “economic policy software”. The engineer uses this software to guide policymakers on a scientific basis. For its part, Sargent considers that in order to substitute the Keynesian paradigm, the new classical economics must be able to fulfill the same tasks. And one of these tasks is to advise public authorities by providing them with an interpretative framework for the economic and social phenomena and with intuitive tools to discuss the economic policies that will be set up. Sargent wants to apply what he calls the Rational Expectations Theory to a set of concrete events (Poincaré stabilization, German hyperinflation, Thatcher and Reagan policies) in order to demonstrate the relevance of this interpretative framework used to think about contemporary economic problems.