War, money & economy: Inflation and production in the Fed and pre-Fed periods

Abstract

Do the effects of wars influence our perceptions of U.S. economic performance? This paper compares the rates and volatilities of inflation and GDP growth under the Fed to those in the pre-Fed period adjusting for wars as exogenous shocks. Dividing the pre-Fed periods into subperiods based on changes in the monetary system, we find that performance in the pre-Fed periods is mostly the same as or better than in the post-War II Fed period and the Great Moderation. The rates of inflation under the Fed have generally been higher and the rates of GDP growth lower, but reductions in inflation and GDP volatility are smaller than in other studies and often not statistically significant after accounting for wartime shocks.