The Active Role of the Natural Rate of Unemployment | Hoover Institution

Wednesday, February 21, 2024
Hoover Institution | Stanford University
Robert Hall, the Robert and Carole McNeil (joint) Senior Fellow at the Hoover Institution and Professor of Economics at Stanford University, discussed “The Active Role of the Natural Rate of Unemployment,” a paper with Marianna Kudlyak (Federal Reserve Bank of San Francisco).
PARTICIPANTS
Robert Hall, John Taylor, Annelise Anderson, Christopher Ball, Karim Basta, Steven Blitz, Michael Bordo, Michael Boskin, Matthew Canzoneri, Pedro Carvalho, John Cochrane, Steven Davis, Randi Dewitty, Sami Diaf, John Duca, Christopher Erceg, Eugene Fama, Alessandra Fogli, Jared Franz, Oliver Giesecke, Tyler Goodspeeed, Rick Hanushek, Robert Hetzel, Laurie Hodrick, Robert Hodrick, Ken Judd, Matthew Kahn, Greg Kaldor, Tim Kane, Pete Klenow, Roman Kräussl, Anne Krueger, Marianna Kudlyak, Jeff Lacker, David Laidler, Oliver Landmann, Stephen Leroy, Ross Levine, Mickey Levy, John Lipsky, Michael McKee, Roger Mertz, Ilian Mihov, Rich Miller, Athanasios Orphanides, Radek Paluszinski, David Papell, Fabrizio Perri, Randal Quarles, Valerie Ramey, Paola Sapienza, Lawrence Schembri, John Smyth, Richard Sousa, Tom Stephenson, Derek Tang, Jack Tatom, James Van Horne, Kevin Warsh
ISSUES DISCUSSED
Robert Hall, the Robert and Carole McNeil (joint) Senior Fellow at the Hoover Institution and Professor of Economics at Stanford University, discussed “The Active Role of the Natural Rate of Unemployment,” a paper with Marianna Kudlyak (Federal Reserve Bank of San Francisco).
John Taylor, the Mary and Robert Raymond Professor of Economics at Stanford University and the George P. Shultz Senior Fellow in Economics at the Hoover Institution, was the moderator.
PAPER SUMMARY
We propose that the natural rate of unemployment may have an active role in the business cycle, in contrast to a widespread view that the rate is fairly smooth and at most only weakly cyclical. We demonstrate that the tendency to treat the natural rate as near-constant would explain the surprisingly low slope of the Phillips curve. We observe that evidence is weak about this basic point-the evidence neither comes close to rejecting the conventional view nor does it reject a very different view in which fluctuations in the natural rate are associated with a substantial fraction of cyclical volatility. We show that the natural rate may have closely tracked the actual rate during the long recovery that began in 2009 and ended in 2019. We explain how the common finding of research in the Phillips-curve framework of low-often extremely low-response of inflation to unemployment could be the result of fairly close tracking of the natural rate and the actual rate in recoveries. Our interpretation of the data contrasts to that of many Phillips-curve studies, that conclude that inflation has little relation to unemployment. But we also call attention to a recently growing body of research along New Keynesian lines that supports the credibility of the hypothesis of a strong relation between movements of the natural rate and actual rate of unemployment.
To read the paper, click the following link
www.hoover.org/sites/default/...
To read the slides, click the following link
www.hoover.org/sites/default/...