Feldstein On Inflation
Martin Feldstein has an interesting Op-Ed inwards the Wall Street Journal, "Why the U.S.A. Underestimates Growth."
The basic persuasion is that inflation may live on overstated, because it doesn't produce a proficient chore of treatment novel products. As a result, existent output growth may live on a fleck stronger than measured. Marty runs through a lot of sensible conclusions.
He doesn't speak almost monetary policy, only that's interesting too. So what if inflation actually is (say) 3% lower than nosotros retrieve it is, too thence existent output growth is 3% larger than it actually is?
That would hateful nosotros are a lot closer to "normal" of course.
It would hateful that nosotros actually accept 0% nominal involvement rates, 1.5% deflation rather than 1.5% inflation; +1.5% existent rates rather than -1.5% existent rates. That is almost the ideal monetary policy. Flat nominal wages, too so nosotros don't accept wage stickiness problems, slight deflation matching productivity increases too a positive only depression existent charge per unit of measurement of interest. We alive the Friedman optimal quantity of money. In addition, it agency no inflationary distortions too fewer intertemporal distortions inwards the taxation code -- no taxing interest.
The project marketplace is pretty much dorsum to normal except for the project forcefulness participation rate. The primary sign of weakness is existent output growth, too Marty suggests that mightiness non fifty-fifty live on there.
How should the Fed react? News that existent output growth is stronger than the Fed thinks would live on an declaration to enhance rates. News that inflation is weaker than the Fed thinks is an declaration to lower rates. At conventional Taylor-rule parameters of 1.5 times inflation plus 0.5 times output gap, intelligence that inflation is 1% lower too output is 1% higher agency the lowering outcome wins. So, inwards fact this is an declaration to maintain rates where they are too to piece of job past times away along basking inwards the Friedman optimal quantity of coin for a while.
In fact, this strikes me equally the primary conclusion. As Marty points out, if existent growth is stronger than nosotros think, that doesn't hateful it couldn't live on stronger still. If existent payoff are actually rising, that doesn't hateful they couldn't live on ascent more. Weak project forcefulness participation too full component productivity are non much influenced past times inflation measures.
The basic persuasion is that inflation may live on overstated, because it doesn't produce a proficient chore of treatment novel products. As a result, existent output growth may live on a fleck stronger than measured. Marty runs through a lot of sensible conclusions.
He doesn't speak almost monetary policy, only that's interesting too. So what if inflation actually is (say) 3% lower than nosotros retrieve it is, too thence existent output growth is 3% larger than it actually is?
That would hateful nosotros are a lot closer to "normal" of course.
It would hateful that nosotros actually accept 0% nominal involvement rates, 1.5% deflation rather than 1.5% inflation; +1.5% existent rates rather than -1.5% existent rates. That is almost the ideal monetary policy. Flat nominal wages, too so nosotros don't accept wage stickiness problems, slight deflation matching productivity increases too a positive only depression existent charge per unit of measurement of interest. We alive the Friedman optimal quantity of money. In addition, it agency no inflationary distortions too fewer intertemporal distortions inwards the taxation code -- no taxing interest.
The project marketplace is pretty much dorsum to normal except for the project forcefulness participation rate. The primary sign of weakness is existent output growth, too Marty suggests that mightiness non fifty-fifty live on there.
How should the Fed react? News that existent output growth is stronger than the Fed thinks would live on an declaration to enhance rates. News that inflation is weaker than the Fed thinks is an declaration to lower rates. At conventional Taylor-rule parameters of 1.5 times inflation plus 0.5 times output gap, intelligence that inflation is 1% lower too output is 1% higher agency the lowering outcome wins. So, inwards fact this is an declaration to maintain rates where they are too to piece of job past times away along basking inwards the Friedman optimal quantity of coin for a while.
In fact, this strikes me equally the primary conclusion. As Marty points out, if existent growth is stronger than nosotros think, that doesn't hateful it couldn't live on stronger still. If existent payoff are actually rising, that doesn't hateful they couldn't live on ascent more. Weak project forcefulness participation too full component productivity are non much influenced past times inflation measures.
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