The third, and arguably most important, difference between today and the 1970s is the accumulated advance in the theory of monetary policy making. Monetary theory no longer sees inflation as a by-product of real-sector forces which are largely outside the control of the central bank. On the contrary, in the long run inflation is generally believed to be a monetary phenomenon.
Therefore, there is widespread agreement on the substantial benefits of price stability and central bank independence, on the forwardlooking nature of monetary policy and its need for credibility and commitment. Given these changes in monetary policy, the re-emergence of an inflationary wage-price spiral which was characteristic of the 1970s now appears less likely.