How An Old Banking Regulation May Have Driven The 1970s Inflation

There remains a lot of anxiety over whether inflation in the US will gather steam all over again. Part of this worry stems from the fact that there were multiple bouts of inflation in the 1970s, which was the last time the US had a serious inflation problem. So to understand whether our current environment bears similar risks to that of the 70s, it's important to understand what actually drove inflation during that period. On this episode, we speak with Itamar Drechsler, a finance professor at Penn's Wharton school. He argues that the banking regulation known as Reg Q impaired the transmission of monetary policy, and resulted in a perverse dynamic via which rate hikes served to impair the supply side of the economy, rather than cool the demand side.

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