>> It's important to distinguish between the NAIRU and the old
Phillips
>>curve. The PC is an old Keynesian idea. Crucial to the NAIRU is the
>>"accelerationist hypothesis," as Joe Stiglitz called it in the passage I
>>posted yesterday. And as Stiglitz wrote, the empirical evidence on the AH
>>is
>>"unambiguous": it's wrong. So the NAIRU must be wrong, too.
>>
> > Seth
>Yes, this is an important distinction. One which is often not made.
>The NAIRU was a right-wing idea used to attack the Phillip's Curve
>literature (which had been associated with liberal-keynesian-full-
>employment policies in their Anglo variety). The idea of the PC was that
>reducing inflation could only be achieved by higher unemployment. Which
>led to an obvious policy question -- what's the "cost" of unemployment
>versus the "cost" of inflation? The PC was a static limited concept, but
>not without merit.
Yaddayadda ... the NAIRU is soooo ten minutes ago. It didn't exist on the way up, and it doesn't appear to exist on the way down. These days, the cooool central bankers think about things in terms of a "Taylor Rule", which just makes the anchor of economic policy the "sustainable rate of growth". The sustainable rate of growth is more rigourously defined theoretically as "some number or other".
Which number -- well, nobody can really tell. So instead they just assume that growth is becoming unsustainable when unemployment gets below 3% -- it isn't "sustainable" to have less that one in 25 people out of work, y'see.
Basically, it gives you all the fun of a NAIRU without having to defend the acceleration thesis in public. Or to put it another way, it's NAIRU plus "'because we say so". What a way to run a railroad.
dd
(who was at the Bank of England when Barro was a Houblon-Norman fellow doing the work which showed that inflation below 8% wasn't harmful. My God did we try to spin that one out of existence)
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s ele°?