1984 010
WORKING PAPER SERIES
How Natural is the Natural Rate?
K. Alec Chrystal and Monojit Chatterji
Working Paper 1984-010A http://research.stlouisfed.org/wp/1984/1984-010.pdf
1984
FEDERAL RESERVE BANK OF ST. LOUIS Research Division 411 Locust Street St. Louis, MO 63102 ______________________________________________________________________________________ The views expressed are those of the individual authors and do not necessarily reflect official positions of the Federal Reserve Bank of St. Louis, the Federal Reserve System, or the Board of Governors. Federal Reserve Bank of St. Louis Working Papers are preliminary materials circulated to stimulate discussion and critical comment. References in publications to Federal Reserve Bank of St. Louis Working Papers (other than an acknowledgment that the writer has had access to unpublished material) should be cleared with the author or authors. Photo courtesy of The Gateway Arch, St. Louis, MO. www.gatewayarch.com
How Natural is the Natural Rate? by
K. Alec Chrystal and Monojit Chatterji
Abstract In the last two decades the one macroeconomic concept which has become standard equipment in macroeconomics is the Natural Rate Hypothesis (NRH).
The NRH is usually embodied as a vertical sggregate
supply curve and forms a cornerstone of the "policy ineffectiveness" proposition. JJe emphasize that the driving power of the policy ineffectiveness proposition derives from the joint assumptions that (a) the aggregate supply curve is vertical and (b) that the aggregate supply curve is independent of aggregate demand. We claim that this usage of the NRH is inappropriate for many purposes.
It results from a trivialisation of the supply structure of
the economy and has little justification if it is intended to analyze the real effects of virtually any imaginable policy. We give some examples where minor modifications to the supply structure generate an aggregate supply curve which is not independent of aggregate demand. Wlth fully informed optimizing agents each policy action will generate a new general equilibrium. Nothing is "natural" and little is policy invariant. Evidence is presented to show that the issues raised may be of empirical significance.
How Natural is the Natural Rate?
K. Alec Chrystal and Monojit Chatterji
Working Paper 1984-010A http://research.stlouisfed.org/wp/1984/1984-010.pdf
1984
FEDERAL RESERVE BANK OF ST. LOUIS Research Division 411 Locust Street St. Louis, MO 63102 ______________________________________________________________________________________ The views expressed are those of the individual authors and do not necessarily reflect official positions of the Federal Reserve Bank of St. Louis, the Federal Reserve System, or the Board of Governors. Federal Reserve Bank of St. Louis Working Papers are preliminary materials circulated to stimulate discussion and critical comment. References in publications to Federal Reserve Bank of St. Louis Working Papers (other than an acknowledgment that the writer has had access to unpublished material) should be cleared with the author or authors. Photo courtesy of The Gateway Arch, St. Louis, MO. www.gatewayarch.com
How Natural is the Natural Rate? by
K. Alec Chrystal and Monojit Chatterji
Abstract In the last two decades the one macroeconomic concept which has become standard equipment in macroeconomics is the Natural Rate Hypothesis (NRH).
The NRH is usually embodied as a vertical sggregate
supply curve and forms a cornerstone of the "policy ineffectiveness" proposition. JJe emphasize that the driving power of the policy ineffectiveness proposition derives from the joint assumptions that (a) the aggregate supply curve is vertical and (b) that the aggregate supply curve is independent of aggregate demand. We claim that this usage of the NRH is inappropriate for many purposes.
It results from a trivialisation of the supply structure of
the economy and has little justification if it is intended to analyze the real effects of virtually any imaginable policy. We give some examples where minor modifications to the supply structure generate an aggregate supply curve which is not independent of aggregate demand. Wlth fully informed optimizing agents each policy action will generate a new general equilibrium. Nothing is "natural" and little is policy invariant. Evidence is presented to show that the issues raised may be of empirical significance.
