The Natural Rate of Unemployment, Potential Output and Current GDP Trends

.@ojblanchard1 @piie asks if #MiltonFriedman’s #NaturalRate hypothesis (of #Unemployment /#PotentialOutput) still holds up. @LHsummers: 'Any reasonable reader of the data’ would see that post#GFC trend US & EU #PotentialOutput (instead) confirms #Hysteresis doctrine (Phelps 1972) pic.twitter.com/CHZRADsJwe

— Satyen Baindur (@Satyen_Baindur) May 11, 2018

‘Macroeconomic evidence suggests *persistent effects* of monetary policy on natural unemployment rate & potential output; most persuasive microeconomic channel: high unemployment → lower worker morale/skills, ↓ LFPR, thus persistent ↓ potential output’ https://t.co/HgLem0IHpR

— Satyen Baindur (@Satyen_Baindur) May 11, 2018

.@ojblanchard1: ‘I believe that there is a strong (though not overwhelming) case, to allow US output to exceed potential for some time, so as to reintegrate some of the workers who left the labor force during the last ten years.’

— Satyen Baindur (@Satyen_Baindur) May 11, 2018

IMF World Economic Outlook April 2018 - Chapter 2

.@LounganiPrakash “Recessions are not rare,” echoed Prakash Loungani,  a macro-economist at the #IMF. “What is rare is a recession that is forecast in advance.” Despite an increased amount of economic data..., “the ability to predict downturns remains dismal”, he told @FT

— Satyen Baindur (@Satyen_Baindur) April 9, 2018

Inability to explain the #LFPR decline 4 most countries by 'exogenous' effects #Demographics #AgeingPopulation or #Cyclical Effects (#GreatRecession, modest recovery) => role 4 policy interventions – e.g. unemployment benefits, taxes, coordination of wage setting, migration.

— Satyen Baindur (@Satyen_Baindur) April 10, 2018