RE: Re: Re: FYI

["Max B. Sawicky" <sawicky@xxxxxxxxxxxxxxxx>]

It's a matter of emphasis, it's true. Actually, now that I think of it,
what I objected to was your article's seemingly total allegiance to the
natural rate of unemployment hypothesis. That theory, of course, is looking
really bad these days.

>>>>>>>

Bill Dickins is working on a paper that motivates,
models, and estimates a long-run phillips curve.
It looks roughly like this:

                x
                x
               x
              x
             x
           x
         x
       x
     x
     x
      x
        x
             x
                   x
                            x
                                         x
                                                        x

The vertical axis is inflation, the horizontal unemployment.
Minimum unemployment of 3-4% is associated w/about 4% inflation.
Lower levels of inflation cause big increases in unemployment.
higher levels cause UE to converge to 6-8%.

The basic idea is that enough people ignore low levels of inflation
so that policy can reduce unemployment to its minimum rate.  If
inflation picks up more people start paying attention, and when
it approaches 7-10%, or exceeds that, people consistently adjust
to it, producing a different, higher UE rate.  The whole thing
looked like it hung together pretty well.  He had extremely good
results for a non-linear model.

He did a talk on it at EPI today.
It will be in Brookings Papers this spring.

mbs