The 1971-1974 Controls Program and the Price Level : an Econometric Post-Mortem

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This paper provides new empirical evidence on the effects of the Nixon wage price controls on the price level. The major new wrinkle is that the controls are treated as a quantitative (rather than ...

This paper provides new empirical evidence on the effects of the Nixon wage price controls on the price level. The major new wrinkle is that the controls are treated as a quantitative (rather than just a qualitative) phenomenon through the use of a specially-constructed series indicating the fraction of the economy that was controlled. According to the estimates, by February 1974controls had lowered the non-food non-energy price level by percent. After that point, and especially after controls ended in April 1974, a period of rapid 'catch up' inflation eroded the gains that had been achieved, leaving the price level from zero to 2 percent below what it would have been in the absence of controls. The dismantling of controls can thus account for most of the burst of 'double digit' inflation in non-food and non-energy prices during 1974.

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