Figure 1 shows the level of inflation in the U.S. economy (measured as the percentage growth in the gross domestic product or GDP deflator over the previous four quarters) from 1951 to 2003. The general pattern is familiar to many of us: The level of inflation was successively low and not very variable (in the 1950s and 1960s), high and variable (in the 1970s), and low and not variable again (since the 1980s).

The graph is divided into five sections, by tenure of the chairmanship of the Board of Governors of Federal Reserve System: William McC. Martin (1951–70), Arthur Burns (1970–78), G. William Miller (1978–79), Paul Volcker (1979–87), and Alan Greenspan (since 1987). While the exact degree of control of a central bank over the level of prices is a matter of debate, the conventional wisdom assigns a major role to these individuals in the rise and fall in inflation. In particular, the fact that inflation has been low since the 1980s has been credited to the efforts of Paul Volcker and Alan Greenspan.

This article surveys the recent literature motivated by the following question: To what extent does the pattern of figure 1 reflect the actions of these individuals? In particular, what caused the high inflation in the 1970s, and is the low inflation of the 1990s due to a change in policy, as the conventional wisdom suggests?