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US inflation and inflation uncertainty over 200 years

  • Don Bredin (a1) and Stilianos Fountas (a2)

This article uses historical US inflation data covering over two centuries to examine the impact of the establishment of the US Federal Reserve on average US inflation and inflation uncertainty. We find that the founding of the Fed is associated with higher average US inflation and lower inflation uncertainty. Critically, these results are not driven by the post-1980 period, where the Fed policy is characterised by the dual mandate. Other important results are that the gold standard period is associated with both lower inflation and inflation uncertainty, and that banking and stock market crises are a positive determinant of inflation uncertainty and perhaps inflation. World Wars I and II and the US Civil War are associated with both higher inflation and higher inflation uncertainty. In addition, we find that the central bank has responded to increasing inflation uncertainty in a stabilising manner in support of the Holland hypothesis.

Corresponding author
D. Bredin (corresponding author), Graduate School of Business, University College Dublin, Carysfort Avenue, Blackrock, Dublin, Ireland; email:
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We are grateful to the editor and anonymous referees, Cormac O'Grada, Kevin O'Rourke and John Turner for their very helpful comments on earlier drafts. The authors would also like to thank participants of the Rimini Conference in Economics and Finance (2014), the ASSET annual conference (Aix-en-Provence, 2014) and a departmental seminar at the University of Stirling for helpful comments and suggestions. The usual disclaimer applies. Bredin acknowledges the support of Science Foundation Ireland under grant number 16/SPP/3347.

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Financial History Review
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