Affiliation:
1. Olivier Blanchard is C. Fred Bergsten Senior Fellow, Peterson Institute for International Economics, Washington, DC, and Robert M. Solow Professor of Economics Emeritus, Massachusetts Institute of Technology, Cambridge, Massachusetts.
Abstract
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.
Publisher
American Economic Association
Subject
Economics and Econometrics,Economics and Econometrics
Cited by
84 articles.
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