Martin Feldstein has an interesting Op-Ed inwards the Wall Street Journal, "Why the U.S. Underestimates Growth."
The basic persuasion is that inflation may hold upwards overstated, because it doesn't produce a practiced project of treatment novel products. As a result, existent output growth may hold upwards a flake stronger than measured. Marty runs through a lot of sensible conclusions.
He doesn't beak nigh monetary policy, simply that's interesting too. So what if inflation actually is (say) 3% lower than nosotros shout out upwards it is, together with thus 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 nigh the ideal monetary policy. Flat nominal wages, together with so nosotros don't accept wage stickiness problems, slight deflation matching productivity increases together with a positive simply depression existent charge per unit of measurement of interest. We alive the Friedman optimal quantity of money. In addition, it agency no inflationary distortions together with fewer intertemporal distortions inwards the taxation code -- no taxing interest.
The labor marketplace position is pretty much dorsum to normal except for the labor forcefulness participation rate. The principal sign of weakness is existent output growth, together with Marty suggests that powerfulness non fifty-fifty hold upwards there.
How should the Fed react? News that existent output growth is stronger than the Fed thinks would hold upwards an declaration to heighten 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 together with output is 1% higher agency the lowering termination wins. So, inwards fact this is an declaration to hold rates where they are together with to proceed basking inwards the Friedman optimal quantity of coin for a while.
In fact, this strikes me equally the principal conclusion. As Marty points out, if existent growth is stronger than nosotros think, that doesn't hateful it couldn't hold upwards stronger still. If existent payoff are actually rising, that doesn't hateful they couldn't hold upwards ascension more. Weak labor forcefulness participation together with full constituent productivity are non much influenced past times inflation measures.
The basic persuasion is that inflation may hold upwards overstated, because it doesn't produce a practiced project of treatment novel products. As a result, existent output growth may hold upwards a flake stronger than measured. Marty runs through a lot of sensible conclusions.
He doesn't beak nigh monetary policy, simply that's interesting too. So what if inflation actually is (say) 3% lower than nosotros shout out upwards it is, together with thus 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 nigh the ideal monetary policy. Flat nominal wages, together with so nosotros don't accept wage stickiness problems, slight deflation matching productivity increases together with a positive simply depression existent charge per unit of measurement of interest. We alive the Friedman optimal quantity of money. In addition, it agency no inflationary distortions together with fewer intertemporal distortions inwards the taxation code -- no taxing interest.
The labor marketplace position is pretty much dorsum to normal except for the labor forcefulness participation rate. The principal sign of weakness is existent output growth, together with Marty suggests that powerfulness non fifty-fifty hold upwards there.
How should the Fed react? News that existent output growth is stronger than the Fed thinks would hold upwards an declaration to heighten 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 together with output is 1% higher agency the lowering termination wins. So, inwards fact this is an declaration to hold rates where they are together with to proceed basking inwards the Friedman optimal quantity of coin for a while.
In fact, this strikes me equally the principal conclusion. As Marty points out, if existent growth is stronger than nosotros think, that doesn't hateful it couldn't hold upwards stronger still. If existent payoff are actually rising, that doesn't hateful they couldn't hold upwards ascension more. Weak labor forcefulness participation together with full constituent productivity are non much influenced past times inflation measures.
