ABSTRACT
This chapter analyses macroeconomic effects of war finance is extended to study issues associated with wartime monetary policies. It focuses on the effects of monetary policy in a wartime economy that is subject to temporary general price controls and rationing. An intertemporal monetary model will be used to analyze the experience of the US economy during World War II, which is a period of extensive price controls, broad-based rationing, and rapid money supply growth. The design of the postwar deflationary policy used in the counterfactual experiment is guided by the behavior of wholesale prices following these earlier US wars. General price controls and various rationing schemes have been used during several US wars, and have been documented in detail by Hugh Rockoff. Rockoff reports that General Maximum Price Regulation was modified by the office of price administration over the course of the war by attempting to fine tune controls across various industries.
