Should We Reject the Natural Rate Hypothesis? | Zendy

Olivier Blanchard | Zendy

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Should We Reject the Natural Rate Hypothesis?

Author(s) -

Olivier Blanchard

Publication year - 2018

Publication title -

the journal of economic perspectives

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 9.614

H-Index - 196

eISSN - 1944-7965

pISSN - 0895-3309

DOI - 10.1257/jep.32.1.97

Subject(s) - natural rate of unemployment , economics , null hypothesis , inflation (cosmology) , unemployment , keynesian economics , natural (archaeology) , unemployment rate , macro , inflation rate , alternative hypothesis , monetary policy , natural experiment , econometrics , macroeconomics , statistics , mathematics , history , physics , archaeology , theoretical physics , computer science , programming language

Fifty years ago, Milton Friedman articulated the natural rate hypothesis. It was composed of two sub-hypotheses: First, the natural rate of unemployment is independent of monetary policy. Second, there is no long-run trade-off between the deviation of unemployment from the natural rate and inflation. Both propositions have been challenged. The paper reviews the arguments and the macro and micro evidence against each. It concludes that, in each case, the evidence is suggestive, but not conclusive. Policymakers should keep the natural rate hypothesis as their null hypothesis, but keep an open mind and put some weight on the alternatives.

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