Final Readings 8 B about inflation Labour markets and phlipps curve

Should people fear the severity of inflation in America and why do people fear it a lot

This is due to the severity of inflation in 1970, but now we are 50 years later the conditions are not the same, and worries of that do not apply to now

What happen in 2014

Unemployment rates dropped below 6 percent, and due to the labour market phillips curve, many commentators thought that inflation would be on the rise due to this. And due to this many people said the government should use monetary policy to reduce it

Now (in 2019) what happened

Well US unemployment is 2.5 % less than it was when people were assured that the economy had reached the natural rate of unymployment, in the 90’s it was said if this rate continued, the inflation would increase 1.3 percent a year

Is the fact that unemployment causing inflation will continue evermore?

No because it will remain at 2 percent per year due to our monetary policy choices.

What was the conventional wisdom in the 90s and why was it justified

Well it was thought that inflation is really bad

Why?

• At the same time, presidents like Nixon and Johnson pushed for high growth no matter what.

• And Fed Chair Arthur Burns gave in to political pressure and kept money loose.

Inflation responded predicatably with the fluctuations in the rate of unemployment: slope was -0.54 so each percentage point of unemployment caused inflation to increase by 0.54

Where was the -0.54 slope drawn from

This is due to inflation rising from a relatively low context of unemployment, and in the early 80s and 1975 inflation fell amid conditions of relatively high unemployment

What happened after1988

The slope of the simplest possible phillips curve as effectively been zero with just -0.03, even when unemployment rose far beyond the natural rate, inflation did not fall nor did deflation fall in those times

DO people still care about inflation

Yes, even though the past 30 years shows no data points, people believe inflation poses a greater threat than the possibility of a reccession.

What do people think the phillips curve is doing right now

Jsut hibernationg, estimates showing a near flat curve over the past generation are unreliable due to the endogenity of monetary policy along with the lack of variation with the unemployment hap

“The Phillips curve is still real, but it's hidden because the Fed kept inflation steady. So we can’t see the curve in recent data — but it’s there.”

What does the author think of those still supporting the phillips curve

HE doesnt understand as the estimates today are more precise than ever.

He believes the window captured in the phillips curve is too short to allow for any substancial monetary response

But monetary policy (like interest rate changes) affects the economy more slowly. So you can’t really expect to see big results from monetary policy within the short time frame the Phillips curve focuses on.

Conclusion of “stop inflating the inflation threat”

Yes inflation can be a threat but it comes from fear back when there was a lot of negative supply shocks its a thing of the past to souly be worreid about inflation

What does the author of stop inflating the inflating threat think we should focus on more instead

Recession, employment, and real economic growth might deserve more attention than obsessing