This is the sixth installment of our interview series “Where is the General Theory of the 21st Century?” Blanchard on DSGE and the State of Macroeconomics | #WITGT21 Conversation Series | EconReporter Continuing our previous discussion on “DSGE model and the State of Macroeconomics”, Professor Olivier Blanchard further explained the role empirical research on DSGE … Read more
Welcome! This is the Fifth installment of our interview series “Where is the General Theory of the 21st Century?” “Where is the General Theory of the 21st Century?” is an interview series which ask top economists a very important question: “Why haven’t economists come up with a new General Theory that can explain the Great … Read more
Theory and evidence suggest that this trend is strongly influenced by inflation expectations that, in turn, depend on monetary policy. In particular, the remarkable stability of various measures of expected inflation in recent years presumably represents the fruits of the Federal Reserve’s sustained efforts since the early 1980s to bring down and then stabilize inflation at a low level.
The anchoring of inflation expectations that has resulted from this policy does not, however, prevent actual inflation from fluctuating from year to year in response to the temporary influence of movements in energy prices and other disturbances. In addition, inflation will tend to run above or below its underlying trend to the extent that resource utilization–which may serve as an indicator of firms’ marginal costs–is persistently high or low…