tag:blogger.com,1999:blog-582368152716771238.post3913782510776817646..comments2024-03-28T14:41:03.793-05:00Comments on The Grumpy Economist: Phillips artJohn H. Cochranehttp://www.blogger.com/profile/04842601651429471525noreply@blogger.comBlogger22125tag:blogger.com,1999:blog-582368152716771238.post-71508880643181663182016-06-09T07:04:04.415-05:002016-06-09T07:04:04.415-05:00Silly me. I failed to mention the other main presu...Silly me. I failed to mention the other main presumed policy driver besides monetary policy, which is fiscal policy (spending, taxing, borrowing). And of course there are other policy drivers and certainly non-policy drivers (e.g., ideas).berferdnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-81987882716761780962016-06-08T13:01:18.133-05:002016-06-08T13:01:18.133-05:00HI. Good question. With the Phillips curve plot ...HI. Good question. With the Phillips curve plot in particular, I think the best answer is that there is not really a presumption that one is driving the other; they are more both outcomes driven to some degree by monetary policy tightness or ease, and here conventional and Keynesian economists (and the business news shows) presume that the driver (not plotted in the PC graph) is lower interest rates (where the monetarists argue it more the underlying monetary inflation itself, i.e., reserve creation times monetary multiplier effects). The PC graph shows both CPI and unemployment. The CPI presumably represents the price inflation, which per the monetarists at least results from monetary inflation (central-bank easing). Lower unemployment, too, presumably results from the easy money (or the lower interest rates, per the Keynesians). But (as monetarists point out) there is also the question of different lags: Presumably, money prompts growth first (1-3 quarters) and ends up in inflation later (1-3 years), so one could play with variants of the data to plot. But Bill, your question needs always to be asked about any x-y plot or econ graph (even P/Q), so kudos.berferdnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-63905963181781901572015-09-01T11:42:15.547-05:002015-09-01T11:42:15.547-05:00Dr Cochrane,
Can you explain why economists show t...Dr Cochrane,<br />Can you explain why economists show the presumably dependent variable (unemployment) on the horizontal axis when the universal convention of Western science and technology plots the independent variable (inflation) on the horizontal axis?<br />Thanks,<br /> Bill Drissel, Frisco, TX<br />Bill Drisselhttps://www.blogger.com/profile/14449111806380754969noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-21730442634440131442015-08-31T14:13:34.979-05:002015-08-31T14:13:34.979-05:00Yes, you cannot create real growth through purely ...Yes, you cannot create real growth through purely monetary methods. Your proposed policy will create inflation but will not have a meaningful impact on employment. In fact, as it would be so surprising and erratic, I would guess it would destroy a few million jobs.<br /><br />Anonymoushttps://www.blogger.com/profile/06862418730092856369noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-54782458055918108712015-08-31T01:16:49.070-05:002015-08-31T01:16:49.070-05:00I agree there is no trade-off between inflation an...I agree there is no trade-off between inflation and unemployment as both are residuals of ex-ante money supply and demand. The observed Phillips Curve is simply a by-product of the monetary regime. You can find more in this post (which also discusses whether Fed should raise interest rates in September) http://hpublius.blogspot.com/2015/08/should-fed-raise-interest-rates-primer.htmlH. Publiushttps://www.blogger.com/profile/16019756383734059819noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-86309688012668749192015-08-30T15:26:34.022-05:002015-08-30T15:26:34.022-05:00Thanks Tom.
I'll be here all week.
Don't ...Thanks Tom.<br /><br />I'll be here all week.<br />Don't forget your waitress.Fat Manhttps://www.blogger.com/profile/09554029467445000453noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-14958678091233480682015-08-28T13:11:14.668-05:002015-08-28T13:11:14.668-05:00This comment has been removed by a blog administrator.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-36799558832083442712015-08-28T05:01:05.476-05:002015-08-28T05:01:05.476-05:00It ought to be a horizontal line. Reason is that i...It ought to be a horizontal line. Reason is that if people VOLUNTARILY withdraw from the labor force (which is what the phrase “non-participation” means), then demand declines because those people no longer have a wage to spend. But aggregate supply also declines because those people are no longer available as a source of “supply” or labor supply. <br /><br />Put another way, if a group of people voluntarily cease participating, government if it’s doing it’s job right, will take notice, and cut aggregate demand in proportion. At least that's what government would do if unemployment was already at the lowest feasible level (NAIRU). Though obviously the idea that government gets that sort of thing right in the real world is fanciful.<br />Ralph Musgravehttps://www.blogger.com/profile/09443857766263185665noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-11431965997030399182015-08-28T00:08:47.490-05:002015-08-28T00:08:47.490-05:00So you’re saying there’s no relationship between i...So you’re saying there’s no relationship between inflation and unemployment? That’s great news: we could organise a huge increase in demand (e.g. by printing and distributing $10,000 to every household). Unemployment will drop to near zero and there’ll be no increase in inflation? <br /><br />I think that’s a bit unrealistic.<br /><br />Ralph Musgravehttps://www.blogger.com/profile/09443857766263185665noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-23067540305668544962015-08-27T00:34:03.568-05:002015-08-27T00:34:03.568-05:00The US Federal Reserve should abandon its inflatio...The US Federal Reserve should abandon its inflation target and instead shoot for 2% unemployment. If they fail so what? Worth a try.<br />The IT is obviously a global slot. Would chronically tight labor markets in the United States be such a bad thing? How would the voting public feel about free enterprise if they were chronically tight labor markets?Benjamin Colehttps://www.blogger.com/profile/14001038338873263877noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-55151020753533003882015-08-26T18:09:07.764-05:002015-08-26T18:09:07.764-05:00How is it that the Phillips curve is still taught ...How is it that the Phillips curve is still taught to impressionable youngsters?<br />Isn't it beyond time that this theory be retired?<br />Do you still teach this theory to your undergrads?Anonymoushttps://www.blogger.com/profile/06862418730092856369noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-75470493551850422712015-08-25T21:45:14.605-05:002015-08-25T21:45:14.605-05:00JB McMunn,
The unemployment rate (in and of itsel...JB McMunn,<br /><br />The unemployment rate (in and of itself) does not give a complete picture of employment trends. A better measure (in my opinion) is the employment to population ratio. <br /><br />And you are correct:<br /><br />https://en.wikipedia.org/wiki/Phillips_curve<br /><br />"William Phillips, a New Zealand born economist, wrote a paper in 1958 titled The Relation between Unemployment and the Rate of Change of Money Wage Rates in the United Kingdom, 1861-1957, which was published in the quarterly journal Economica."<br /><br />The guys responsible for linking overall inflation and employment were:<br /><br />"Similar patterns were found in other countries and in 1960 Paul Samuelson and Robert Solow took Phillips' work and made explicit the link between inflation and unemployment: when inflation was high, unemployment was low, and vice versa."<br /><br />And so you might call it the Solow / Samuellson curve.FRestlyhttps://www.blogger.com/profile/09440916887619001941noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-40790307180341436102015-08-25T08:20:09.600-05:002015-08-25T08:20:09.600-05:00How would the graph of labor non-participation ver...How would the graph of labor non-participation versus inflation look?Bob Gonzalezhttps://www.blogger.com/profile/05805334413600512360noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-36124090319265998312015-08-25T01:15:23.844-05:002015-08-25T01:15:23.844-05:00Lol, ... that's the 1st time I've seen an ...Lol, ... that's the 1st time I've seen an extended Shakespeare quote on any macro blog -- but it seems to fit.Tom Brownhttp://www.google.comnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-64260156002019710512015-08-25T00:02:29.023-05:002015-08-25T00:02:29.023-05:00Just don't make the mistake I made and tell yo...Just don't make the mistake I made and tell your therapist it looks like two cats fighting over a hamster. I did and now I'm not allowed to handle any sharp objects for a week.JB McMunnhttps://www.blogger.com/profile/15468282698533043544noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-63410725117403343602015-08-24T22:55:56.964-05:002015-08-24T22:55:56.964-05:00Hamlet Act III Scene 2:
HAMLET
Do you see yo...Hamlet Act III Scene 2:<br /><br />HAMLET<br /><br /> Do you see yonder cloud that's almost in shape of a camel?<br /><br />LORD POLONIUS<br /><br /> By the mass, and 'tis like a camel, indeed.<br /><br />HAMLET<br /><br /> Methinks it is like a weasel.<br /><br />LORD POLONIUS<br /><br /> It is backed like a weasel.<br /><br />HAMLET<br /><br /> Or like a whale?<br /><br />LORD POLONIUS<br /><br /> Very like a whale.Fat Manhttps://www.blogger.com/profile/09554029467445000453noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-43391696105388461472015-08-24T22:50:48.424-05:002015-08-24T22:50:48.424-05:00Maybe its more like this one:
"Monument with...Maybe its more like this one:<br /><br />"Monument with Standing Beast" by Jean Dubuffet in front of the James R. Thompson Center in the Loop<br /><br />https://en.wikipedia.org/wiki/Monument_with_Standing_BeastFat Manhttps://www.blogger.com/profile/09554029467445000453noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-52698470280678906332015-08-24T19:05:31.589-05:002015-08-24T19:05:31.589-05:00The graph reminds me of the big Picasso sculpture ...The graph reminds me of the big Picasso sculpture in the Loop.<br /><br />https://en.wikipedia.org/wiki/Chicago_PicassoFat Manhttps://www.blogger.com/profile/09554029467445000453noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-17421237631497764852015-08-24T15:57:49.604-05:002015-08-24T15:57:49.604-05:00A follow-up thought. Wasn't Phillips' orig...A follow-up thought. Wasn't Phillips' original idea that there was an inverse relationship between unemployment rate and wage inflation? Should we call this a Phillips Curve since Phillips' work was not employment vs general prices, but employment vs price of employees? <br /><br />That concept was extrapolated by others to using price inflation, correct? I think the assumption was that the prices a business charges are correlated with the wages it pays. But labor is only one cost input, so is that a valid jump? Should we really expect the above chart to make sense or to follow a true Phillips curve of employment vs wage inflation?<br />JB McMunnhttps://www.blogger.com/profile/15468282698533043544noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-54856242160277239492015-08-24T13:17:38.379-05:002015-08-24T13:17:38.379-05:00Seems you got here first. I should have said "...Seems you got here first. I should have said "rational expectations" in that final quote.<br /><br />Overall, it takes a heroic dose of pattern recognition to see the Phillips curve. That graph is pretty ridiculous!Jason Smithhttps://www.blogger.com/profile/12680061127040420047noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-81524974234278804622015-08-24T13:10:10.658-05:002015-08-24T13:10:10.658-05:00How much, if any, of this is due to changes in met...How much, if any, of this is due to changes in methodology? IIRC, Clinton changed the way unemployment is calculated back in the 90s. CPI seems to undergo mutations rather frequently. <br /><br />The relationship actually seems to be present in the '61-'69 data but that was before Nixon made us all Keynesians. After that, it just looks like the path I follow out to my car when the bar closes.<br /><br />Right now we have low inflation (a/k/a price stability) and low unemployment, which are the "dual mandate", yet things just aren't right with the economy. Either the goals are wrong or we're following the wrong numbers. JB McMunnhttps://www.blogger.com/profile/15468282698533043544noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-84931976365971450332015-08-24T12:12:15.708-05:002015-08-24T12:12:15.708-05:00Dr. Cochrane,
You might be interested in this rel...Dr. Cochrane,<br /><br />You might be interested in this related post entitled <a href="http://informationtransfereconomics.blogspot.com/2015/08/employment-doesnt-depend-of-inflation.html" rel="nofollow">"Employment doesn't depend on inflation."</a> The model arising from his framework shows what may be to you a surprising relationship between <a href="http://1.bp.blogspot.com/-c75tSnP7zfA/VdTnqMxZi5I/AAAAAAAAHlE/sPaTp9o8QQk/s1600/itm%2Bshocks%2Band%2Blabor%2Bgrowth.png" rel="nofollow">nominal shocks and changes in employment.</a> (σ in blue, ℓ in yellow).<br /><br />One of his concluding sentence fragments: <br /><br />"Effectively, employment growth is the part of nominal output (NGDP) that is left over after accounting for inflation. Thus there shouldn't be any relationship between inflation and unemployment -- i.e. the Phillips curve isn't real. This even applies to a version of the model consistent with expectations..."<br /><br />Tom Brownhttp://www.google.comnoreply@blogger.com