Textbook Explanations of Inflation in the 1970s

Abstract

This survey of 23 macroeconomics textbooks shows that many contain an analysis of inflation during the 1970s that is potentially misleading. The survey indicates the predominant textbook explanation of inflation in the 1970s is that price increases of imported oil caused supply-side shocks that led to cost-push inflation. The textbook oil story of inflation is frequently based on casual empiricism, often fails to directly integrate monetary policy, and could have been presented using the price of any basic imported commodity. The contention in this article is that the oil story of inflation is included in the textbooks, even if it is flawed and misleading, because it is a low-cost, easily understood explanation that is consistent with a Keynesian view of inflation. The oil story, moreover, is included in textbooks because it is considered an accurate story of inflation by nearly all authors. Personal correspondence with the textbook authors offers support for this explanation for inclusion of the oil story in the textbooks.

Does the Phillips Curve Dominant the Fluctuations of Inflation

“…Goodman and McMahon (1979) found that oil price increases 0.9 percent and could resulting in increasing 0.6 percentage to 0.7 percentage points to the inflation rate. Using various samples for empirical tests, McGuire and Willman (1999), Roeger (2005), Ajuzie and Ike (2009), and Bachmeier and Cha (2011) indicated that the fluctuations of oil prices have a significant effect on CPI.…”