« Mother of all final exams | Main | Darth Vader and Adam Smith: Similar philosophies on political economy? »
May 20, 2005
Kohn on the problem of predicting inflation
With a tip of the hat to Mark Thoma (Economist's View), I direct you to today's speech by Donald Kohn.
The speech confirms what I've thought for a while. Donald Kohn's perspective makes his speeches very much worth reading. He was secretary of the FOMC for 15 years before becoming a governor (as well as Director of the Division of Monetary Affairs for nearly all of that time). In a sense, he served the equivalent of a full term of a governor as a non-voting staff member. He is in a unique position to speak on these issues because he's seen it from both sides (staff and governor). That makes for a good speech on inflation expectations and inflation forecasting.
Posted by William Polley at May 20, 2005 10:51 PM
Trackback Pings
TrackBack URL for this entry:
http://www.williampolley.com/cgi-bin/mt-tb.cgi/242
Comments
The contrast of his speech and Bill Gross's recent comments on inflation provides a very interesting backgrond to the current problems facing forcasters and markets.
If you use lagged inflation as a measure of inflation expectations you should conclude that wages and inflation will accelerate much more then Gross suggest unless you are expecting a sharp slowing of growth and the creation of significant economic slack.
Posted by: spencer at May 21, 2005 9:03 AM
Interesting speech, though there was one paragraph that made me blink. Kohn states that one factor leading to a gradual reduction in the "natural rate" of unemployment was the gradual withdrawal from the labour force of those with above average unemployment rates.
This seems cockeyed to me. How does a withdrawal from the labour force of some people reduce the natural rate? I can see how such a change makes it more difficult to interpret unemployment statistics - but that's not quite the same thing. Perhaps I'm splitting hairs.
Posted by: rjw at May 25, 2005 10:09 AM