by The Phillips Curve, an economic model developed by A. W. Phillips purports that inflation and unemployment have a stable and inverse relationship. This has been a fundamental guiding economic theory used by the Fed for decades to set interest rates. Various studies have proven the theory is bogus, yet proponents keep believing.… Without the Phillips Curve, the current approach to monetary policy is groundless other than "discretionary." There is no rule.And it's not just the Phillips Curve that is nonsense. So is the concept of the natural rate of interest, which is theoretical (assumption-dependent) rather than observable. The assumptions don't hold water, and the results based on targeting a natural rate of interest and non-accelerating rate of unemployment (NAIRU) have little
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Mike Norman considers the following as important: Monetary Policy, Phillips Curve
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The Phillips Curve, an economic model developed by A. W. Phillips purports that inflation and unemployment have a stable and inverse relationship.
This has been a fundamental guiding economic theory used by the Fed for decades to set interest rates. Various studies have proven the theory is bogus, yet proponents keep believing.…Without the Phillips Curve, the current approach to monetary policy is groundless other than "discretionary." There is no rule.
And it's not just the Phillips Curve that is nonsense. So is the concept of the natural rate of interest, which is theoretical (assumption-dependent) rather than observable. The assumptions don't hold water, and the results based on targeting a natural rate of interest and non-accelerating rate of unemployment (NAIRU) have little empirical justification, either using a rule or discretion have not been impressive, to say the least.
Oh, and the Fed has no satisfactory theory of inflation. How to target something that isn't identified, especially when it is based on "expectations."