My latest ideas on macroeconomics, monetary economics, economic policy and current events.
Will you still say they should focus on headline inflation if commodity prices plummet?
Sure Richard. I know that, for some people, there is an agenda driving their choice of what price index they like to look at. I don't have such an agenda.
I'm surprised you like this speech given 1) it's telling us what we already know and 2) his conclusion is the usual New Keynesian.anon mtm
My last comment should have ended: "his conclusion is the usual New Keynesian one", i.e. the Fed should target sticky prices. But as you seem to be fairly skeptical of sticky prices, I'm not sure why you think the paper is "excellent". What am I missing?anon mtm
Thanks for the link, Stephen. This is the best case for targeting headline inflation rather than core that I've seen so far. It's a stronger case than I realized.To the previous anonymous, his conclusion is not really the "usual New Keynesian one." He notes the point that in sticky price models, optimal policy dictates responding to sticky price sectors rather than flexible price sectors, but argues that this requires more study. And he's right. For example, would the same results apply to sticky wages? What happens if there is heterogeneity across sectors in terms of both sticky prices and sticky wages? After all, sectors with flexible prices like retail gasoline or food may have very different labor market structures than other sectors. If the argument for using core inflation hinges on Aoki's JME piece, Bullard's right that this is tenuous at this point and requires much more research.
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