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

Abstract

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 1974 controls had lowered the non-food non-energy price level by 3-4 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 the the burst of 'double digit' inflation in non-food and non-energy prices during 1974.

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