by From Asad Zaman Economists do not understand inflation. Daniel K. Tarullo. Former Governor, Federal Reserve Board should surely be in a position to know. I will list some key conclusions from his paper with the revealing title: Monetary Policy Without a Working Theory of Inflation : We do not, at present, have a theory of inflation dynamics that works sufficiently well to be of use for the business of real-time monetary policy-making Many … good monetary policymakers … have an almost instinctual attachment to some of those problematic concepts and hard-to-estimate variables. (Nonetheless!) Going forward, monetary policy decisions will need to be made with as much, if not more, emphasis on the constellation of observable indicators with which the FOMC is confronted (Despite all this!)
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from Asad Zaman
Economists do not understand inflation. Daniel K. Tarullo. Former Governor, Federal Reserve Board should surely be in a position to know. I will list some key conclusions from his paper with the revealing title: Monetary Policy Without a Working Theory of Inflation :
- We do not, at present, have a theory of inflation dynamics that works sufficiently well to be of use for the business of real-time monetary policy-making
- Many … good monetary policymakers … have an almost instinctual attachment to some of those problematic concepts and hard-to-estimate variables.
- (Nonetheless!) Going forward, monetary policy decisions will need to be made with as much, if not more, emphasis on the constellation of observable indicators with which the FOMC is confronted
- (Despite all this!) Macroeconomists (should) continue to play a decidedly leading role.
The italicized words are mine, not in Tarullo’s paper. If we pause to reflect, these are breathtaking conclusions. Tarullo says — quite clearly and explicitly — that current theories of inflation are NOT of use for real-time monetary policy. Furthermore, despite their evident failure, economists are blindly attached to these theories — they are “ unmoved by lack of correspondence between their theories and facts of observation “. But, regardless of these, for reasons that I could not fathom, Tarullo advocates going forward with using current constellation of observable indicators, and having the blind macro-economists continue to play a leading role in monetary policy decision making.
The real reason that economists do not understand inflation is because it is an outcome of the class struggle between laborers and capitalists. This topic is taboo in conventional economic theory — it has been ruled out of bounds of the subject, and to study it is to commit professional suicide. read more