Should We Reject the Natural Rate Hypothesis

By Olivier J. Blanchard. 2018

186 citations recorded by the source corpus.

Fifty years ago, Milton Friedman articulated the natural rate hypothesis. It was composed of two sub-hypotheses: First, the natural rate of unemployment is independent of monetary policy. Second, there is no long-run trade-off between the deviation of unemployment from the natural rate and inflation. Both propositions have been challenged. The paper reviews the arguments and the macro and micro evidence against each. It concludes that, in each case, the evidence is suggestive, but not conclusive. Policymakers should keep the natural rate hypothesis as their null hypothesis, but keep an open mind and put some weight on the alternatives.

Subfields: Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/d3b01dea80dca6b0080f9fdafe9afb1ddbc75dae

Citations in the corpus

• Feeling useless: the effect of unemployment on mental health in the Great Recession (2018, unknown): “Our results speak directly to the literature on hysteresis in unemployment (see Blanchard (2018), for a recent review).”
• Public Debt and Low Interest Rates (2019, unknown): “39 I examined the evidence for or against hysteresis in Blanchard (2018).”