Martin Feldstein has an interesting Op-Ed inward the Wall Street Journal , "Why the United States of America Underestimates Growth."
The basic sentiment is that inflation may live on overstated , because it doesn't create a proficient undertaking of treatment novel products. As a final result , existent output growth may live on a chip stronger than measured. Marty runs through a lot of sensible conclusions.
He doesn't speak nigh monetary policy , merely that's interesting too. So what if inflation actually is (say) 3% lower than nosotros recall it is , in addition to 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 bring 0% nominal involvement rates , 1.5% deflation rather than 1.5% inflation; +1.5% existent rates rather than -1.5% existent rates. That is nigh the ideal monetary policy. Flat nominal reward , then nosotros don't bring wage stickiness problems , slight deflation matching productivity increases in addition to a positive merely depression existent charge per unit of measurement of interest. We alive the Friedman optimal quantity of money. In improver , it agency no inflationary distortions in addition to fewer intertemporal distortions inward the revenue enhancement code -- no taxing interest.
The labor marketplace is pretty much dorsum to normal except for the labor forcefulness participation rate. The primary sign of weakness is existent output growth , in addition to 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 summation 0.5 times output gap , intelligence that inflation is 1% lower in addition to output is 1% higher agency the lowering lawsuit wins. So , inward fact this is an declaration to maintain rates where they are in addition to to maintain basking inward the Friedman optimal quantity of coin for a while.
In fact , this strikes me every bit the primary conclusion. As Marty points out , if existent growth is stronger than nosotros recall , that doesn't hateful it couldn't live on stronger still. If existent reward are actually ascension , that doesn't hateful they couldn't live on ascension more. Weak labor forcefulness participation in addition to full constituent productivity are non much influenced past times inflation measures.
The basic sentiment is that inflation may live on overstated , because it doesn't create a proficient undertaking of treatment novel products. As a final result , existent output growth may live on a chip stronger than measured. Marty runs through a lot of sensible conclusions.
He doesn't speak nigh monetary policy , merely that's interesting too. So what if inflation actually is (say) 3% lower than nosotros recall it is , in addition to 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 bring 0% nominal involvement rates , 1.5% deflation rather than 1.5% inflation; +1.5% existent rates rather than -1.5% existent rates. That is nigh the ideal monetary policy. Flat nominal reward , then nosotros don't bring wage stickiness problems , slight deflation matching productivity increases in addition to a positive merely depression existent charge per unit of measurement of interest. We alive the Friedman optimal quantity of money. In improver , it agency no inflationary distortions in addition to fewer intertemporal distortions inward the revenue enhancement code -- no taxing interest.
The labor marketplace is pretty much dorsum to normal except for the labor forcefulness participation rate. The primary sign of weakness is existent output growth , in addition to 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 summation 0.5 times output gap , intelligence that inflation is 1% lower in addition to output is 1% higher agency the lowering lawsuit wins. So , inward fact this is an declaration to maintain rates where they are in addition to to maintain basking inward the Friedman optimal quantity of coin for a while.
In fact , this strikes me every bit the primary conclusion. As Marty points out , if existent growth is stronger than nosotros recall , that doesn't hateful it couldn't live on stronger still. If existent reward are actually ascension , that doesn't hateful they couldn't live on ascension more. Weak labor forcefulness participation in addition to full constituent productivity are non much influenced past times inflation measures.
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