Must-Read: Paul Krugman: Economics: What Went Right
Must-Read: Let me underscore this: economists–especially economists who work for the Federal Reserve system–seem to strongly believe, unless they have themselves tried to estimate Phillips Curves, all three of:
The slope of the Phillips Curve is a lot higher than actual statistical estimates suggest–unless you put your thumb on the scale and pick the single specification that generates the highest slope estimate.
The gearing between recent past inflation and the expected-inflation measure that best forecasts is a lot higher than actual statistical estimates suggest–unless, once again, you put your thumb on the scale and pick the single specification that generates the highest slope estimate.
The confidence intervals of parameters are a lot smaller than actual statistical estimates suggest.
Thus rising inflation in 2017 is a very real thing to the Federal Reserve system–but not to those outside the Federal Reserve who are working with the numbers without having as their goal finding a specification that generates such a forecast…
Economics: What Went Right: “One piece of the conventional story hasn’t worked that well…:
…namely the Phillips curve, where the ‘clockwise spirals’ of previous protracted large output gaps haven’t materialized. Maybe it’s about what happens at very low inflation rates. What’s notable about the Fed’s urge to raise rates, however, is that Fed officials, including Janet Yellen, are acting as if they have high confidence in their models of inflation dynamics –which is the one thing we really haven’t done well at recently. I really fear that we’re looking at incestuous amplification here.