気が付くとクルーグマンとサマーズがまたインフレについてやりあっていた(H/T タイラー・コーエン)。

OK, gonna do an econ thread most of my followers will find incomprehensible. But I think it needs to be done, bc there seems to be a dispute over the inflation outlook in which people are talking past each other 1/
Ever since Friedman and Phelps wrote their seminal papers on inflation and unemployment in the 60s, most practicing macroeconomists have worked with a model that looks something like this:
Core inflation = f(u) + Expected inflation
where u is the unemployment rate 2/
There is some level of u — call it u* — for which f(u)=0. One way or another, u* (which can change over time!) is highly significant. But exactly how it's significant depends on what determines expectations 3/
In the 60s and 70s it seemed reasonable to assume that expected inflation was equal to recent past inflation — in fact, the previous year's inflation looked like a pretty good proxy. So the Phillips curve could be rearranged to
Change in inflation = f(u) 4/
In that case u* became the NAIRU — the rate of unemployment at which inflation neither rose nor fell. The picture looked like this 5/
Given that picture, bringing inflation down would require a period of unemployment higher than u*. How much higher for how much longer? The "sacrifice ratio" was an estimate of how much excess unemployment would be needed to bring inflation down by one point 6/
And if you apply estimates of the sacrifice ratio to the gap between core inflation and the Fed's 2 percent target, it's ugly: it says that we need a lot of excess unemployment in the years ahead 7/
But is this calculation relevant? Both market prices and surveys suggest that medium-term inflation expectations have remained "anchored" despite recent inflation 8/
If those measures are right, getting inflation under control requires getting u up to u*, so f(u) is zero — so some pain — but that's the end of the story. No need for a period of above-normal unemployment 9/
This could, of course, be wrong, and God knows we've learned to be wary of optimistic forecasts. But what seems odd to me is that the pessimists don't even seem to engage with this issue. They're just telling 80s-style stories and ignoring the direct evidence on expectations 10/
Do they think the expectations data are meaningless? Do they have a different model of inflation? Inquiring minds want to know 11/

この図によれば、インフレを下げるにはu*より高い失業率の期間が必要となる。どのくらい高い失業率がどのくらいの期間必要なのだろうか? 「犠牲率」は、インフレを1ポイント下げるのにどのくらいの超過失業率が必要か、という推計値である。
しかしこの計算は今の状況に関連しているのだろうか? 市場価格も調査も、直近のインフレにもかかわらず、中期のインフレ予想は依然として「固定されている」ことを示している。

彼らは予想データは無意味と考えているのだろうか? インフレの異なるモデルを持っているのだろうか? 探究心から知りたいと思うばかりである。


So some people don't seem to realize that this was a *dovish* thread. I was pushing back against assertions, most prominently by Larry Summers, that we need an extended slump to control inflation 1/
My argument was that even if we use the standard framework, current data suggest the need to cool off the labor market, not to put it through a Volcker-style wringer 2/
That standard framework didn't come out of thin air. Data from the big rise and fall of inflation in the 70s and 80s sort of seemed to support it 3/
Of course that interpretation could be all wrong. But I was pushing back against claims that we needed a 1980-85-type era of very high unemployment to cure current inflation. 2022 isn't 1980 4/
Now maybe the whole expectations-augmented Phillips curve story is wrong, and we don't need *any* rise in unemployment to bring this inflation down. I'd love to see a clear model — and feasible policy ideas — for achieving that 5/
As it is, however, I'm making the case that *even if* you believe the orthodoxy, we can have a fairly soft landing that doesn't impose massive suffering 6/
Oh, and I have no idea what u*, if it exists, actually is; nor do I think Fed policy should be based on an estimate thereof. I'm for gradual rate hikes until there are clear signs of slowing underlying inflation. 7/




Are people aware how many indicators are pointing to lower inflation in the near term? Not to declare victory: still little evidence of a fall in underlying inflation. But it's still amazing — and, of course, possibly relevant for November 1/
You know about gasoline, although friends who actually watch Fox tell me some hosts are still talking about "record gas prices" 2/
FAO just reported continuing fall in world food prices, which should show up in grocery stores with a lag 3/
And the prices index of the ISM manufacturing survey has fallen off a cliff 4/
Pretty soon advocates of rate hikes will have to argue that the good news is transitory — which, to be fair, much of it probably is. But we can enjoy the irony 5/
どれくらい多くの指標が近い将来の低インフレを指し示しているか人々は知っているのだろうか? 勝利宣言をするつもりはない。基調的インフレが低下している証拠は未だ乏しい。しかしそれでも驚くべきことであり、当然ながら11月に影響する可能性がある。





@paulkrugman challenges my judgement that a recession, possibly substantial, is likely needed to bring inflation back to the @federalreserve 2 percent target.
@paulkrugman has been too optimistic on inflation for quite a while. I suspect this continues to be the case, though I hope Paul turns out right.
We agree, I think, that underlying inflation is too high, that the economy (especially the labor market) is unsustainably overheated and that for now the @federalreserve needs to tighten, while watching the economy closely.
And, I think we now agree that in retrospect it would have been better if policy had been less stimulative in 2021.
Paul seems to believe—what we both hope—that it will be possible to bring inflation down to target with, at most, a mild recession. This is based on some indicators of headline inflation coming down and, more importantly, on evidence that inflation expectations appear anchored.
In essence, this is more of team transitory. Supply shocks will reverse and expectations are anchored so inflation will naturally evolve down without particularly strong policy medicine. I think Chair Powell was right to abandon the transitory inflation concept.
First, I suspect expectations that inflation will come down are based, at least in part, on judgements that we will have a recession, which most forecasters think quite likely over the next two years.
Second, my guess is that expectations of inflation that have declined as gasoline prices and other volatile CPI components came down, will rise again as core inflation is robust and as labor markets remain very tight and further supply shocks would not be surprising.
Third, the economy is now way overheated. @ojblanchard1, @asdomash and I estimate that an increase in unemployment to 5 percent is likely necessary to get the labor market back into balance.
Slowing wage growth likely requires unemployment above this level, unless one still is subscribing to the team transitory theory of inflation.
Fourth, there is the awkward empirical regularity that slowing the economy in a controlled way has historically proven impossible.
The proposition known as the Sahm Rule holds that the economy never experienced an increase in unemployment of more than several tenths of a point without a recession and a two percentage point increase.
Fifth, risk management counsels a measure of pessimism in setting policy even while hoping for the best. Deflation and zero lower bound are no longer proximate risks.
If the policy response to inflation is inadequate, we risk entrenched expectations and stagflation. If policy is excessive credibility will be gained and policy can be rapidly loosened.
Sixth, economists do not have a compelling theory of inflation. To the extent classical ideas emphasizing money stock measures or fiscal deficits or the need or the Taylor principle have validity, they counsel strong monetary policy.