Inflation Is Always and Everywhere a Monetary Phenomenon

The 1970s are characterised by levels of inflation unseen since the war and by the affirmation of Friedman’s monetarism, which places greater emphasis on the quantitative aspects of controlling the money stock. The attempt, in the end unsuccessful, is to transpose the monetarist theoretical framework to the practical terrain of monetary policy. Later, the increasing influence of neoliberal views prevails in politics as well in the economic activity, with a strong impact on monetary policy through the “practical” monetarism of Volcker’s Federal Reserve. It curbs inflation and, more importantly, changes the expectations about its course. Disinflation follows both in the U.S. and Europe, but to different extent. This inflation differential and the lack of policy coordination are at the root of the failure of the European Exchange Rate Mechanism, the first important attempt to move towards a single European currency.