Macroeconomic Development from the Late-1960s to the Mid-1980s

The inflationary processes during the 1970s cannot be understood without considering the transition from the Bretton Woods system to a system of flexible exchange rates. This shift was accompanied by the illusion that less attention would have to be paid to external stability and that domestic policy objectives could be followed more closely than before. At the same time, the sharp oil price hikes in 1973 and 1979 created price shocks as well as sharply falling aggregate demand. The result was erratically fluctuating exchange rates, high inflation rates, high nominal wage increases, escalating current account balances, poor real GDP growth rates and soaring unemployment. The type of capitalism established after the Second World War entered a period of deep crisis.