Should-Read: Neel Kashkari: Taylor Rule Would Have Kept Millions Out of Work

Should-Read: If the unemployment rate had averaged 1.5% points higher over the past four years, how much lower would inflation be now? That depends on your estimate of the slope of the Phillips Curve. Blanchard tells us that it is currently about 0.18 in the unemployment version of the Phillips curve. Multiplying those two gives you 0.27. You then multiply that by either 1 (if you think inflation expectations are static and anchored) or by 4 (if you think the apparent anchoring of inflation expectations is an epiphenomenon of expectational errors) to get that inflation would be between 0.3 and 1.1 percentage points lower today than its current value of 1.6–putting us between 1.3% and 0.5% per year. The Taylor rule in the 2010s would have been “not a good game”, in the words of the Fish in the Pot of Dr. Seuss’s The Cat in the Hat:

Neel Kashkari: Taylor Rule Would Have Kept Millions Out of Work: “Forcing the Federal Open Market Committee (FOMC) to mechanically follow a rule, such as the Taylor rule…

…to set interest rates can cause tremendous harm to the economy and the American people. My staff at the Minneapolis Fed estimates that if the FOMC had followed the Taylor rule over the past five years, 2.5 million more Americans would be out of work today. That’s enough to fill the seats at all 31 NFL stadiums simultaneously, almost 6,000 more people out of work in every congressional district…