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September 1978

Inflation, Unemployment, and Money: Comparing the Evidence from Two Simple Models

by Keith M. Carlson

Two years ago, Professors Barru and Fischer introduced their survey of monetary theory with the following statement: Perhaps the most striking contrast between current views of money and those of thirty years ago is the rediscovery of the endogeneity of the price level and inflation and their relation to the behavior of money. This assessment contrasts sharply with that of the Council of Economic Advisers in their 1978 Annual Report. In a forty-one page chapter on inflation and unemployment, there are only two oblique references to monetary policy as a contributing factor to the inflationary process.