A Virtual Economics Laboratory: What Generated High Inflation? 14 Different Explanations to One Inflation Period

Yair Barak

doi:10.58567/jea02020003

Authors

Yair Barak Cohn Institute for the History and Philosophy of Science and Ideas, Tel Aviv University, Tel Aviv, Israel https://orcid.org/0000-0001-8829-3204

DOI:

https://doi.org/10.58567/jea02020003

Keywords:

Inflation; Hyperinflation; Deficit; Rational expectations; Indexation; Economic theory; Economic evidence

Abstract

A high inflation period of seven years (1978-1985) in Israel, which turned into a hyperinflation, puzzled Israeli economists, who tried to understand its causes and mechanisms. As a result, they provided fourteen different explanations. Although all of the explanations were based on the same data, the researchers’ conclusions were either different or contradictory. This situation provides a virtual laboratory for the study of the ways and methods of economic thought; it is a classical Ceteris patribus situation. This laboratory further raises other subjects and questions. Are there principal differences between the economists' explanations? Is it possible to classify these differences? How do economic explanations for inflation differ from non-economic ones? In this article, I classified thirteen economic studies and one non-economic study into five clusters. This was the methodological tool used to inquire into the economic thought in this virtual laboratory.

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