Re: Interest Rates and inflation

["John O'Donnell" <jackodonnell@xxxxxxxx>]

"Alan G. Isaac" wrote:
>
> On Thu, 21 Dec 2000, John O'Donnell wrote:
> > Perhaps you'd like to explain just what use the Phillips curve is?
> > As often as it is brought forward as such a major discovery surely
> > there must be some use.
>
> Since pedagogy is my profession, I can hardly refuse
> such a request.

So many words to say that the Phillips curve has nothing
useful to say.

<<SNIP>>

> The key message economists communicate
> with this is that we should *NOT* expect a to find a
> correlation between inflation and unemployment in the
> data, since *any* inflation rate is compatible with
> *any* unemployment rate.

Which is to say "Why bother?"

<<SNIP>>

> This is why it
> is correct to say that the predicted correlation from
> the Phillips curve is between the change in inflation
> and the level of unemployment. (Even here the empirical
> work needs to be informed by common sense: don't expect
> to see this correlation in raw monthly data.)
> It is fair to say that no serious empirical researcher believes
> that s/he should empirically implement the Phillips curve
> by looking for a simple correlation between inflation rates and
> unemployment rates, against your apparent belief.

Which is to say even if you do find correlation you really
can't do anything with the information. Or do you have
something of consequence hidden in your "should  empirically
implement" process that you say shouldn't be implemented
anyway?

<<SNIP>>

> You seem to think economists treat the Phillips curve
> as refuting the natural rate hypothesis.

Although I suspect economists conclude from the PC they can
use it to refute the tautological certainty that dQ/dM = 0
so they can pretend that monetary policy can usefully affect
economic activity, I don't attribute any particular
conclusions to economists. I simply state that whatever the
conclusions are they are of no value toward policy choice
and, in any case, have no ability to refute a tautological
certainty. A conclusion you seem to find difficult to say
outright but admit by your failure to identify any such use.

<<SNIP>>

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			-- jbod

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