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Politics : Idea Of The Day -- Ignore unavailable to you. Want to Upgrade?

To: MeDroogies who wrote (29882)	12/1/1999 2:52:00 PM
From: Lee	Read Replies (1) \| Respond to of 50167

Hi MeDroogies,..Re:.These changes have created a situation where you could argue that NAIRU is actually closer to 4 - 4.5%. Making the US a somewhat "stable" economy at the moment...price-wise. Meyer discusses this aspect in his speech and argues that initially, these structural changes are non-inflationary. _____________________________________________________________________ From the perspective of the traditional models, the current expansion carries two surprises: the strength of domestic demand, explainable in part by the unexpectedly sharp increase in equity prices, and even more impressive, the decline in inflation (this year confined to core measures) despite steadily rising labor utilization rates, to a level well below virtually anyone's estimate of the NAIRU But the key message is that old rules still apply to the new limits. Overheating still eventually results if the growth of demand exceeds the growth of supply for long enough, driving the unemployment rate below the NAIRU. Excess demand in labor markets still ultimately puts upward pressure on nominal compensation. So where are we in this process? That depends on whether the updrift in trend productivity growth is ongoing or over. That is, to some degree, unknowable today, although we have some tangible evidence about future productivity (via capital deepening) from the current pace of net investment and the forecast for investment going forward. And it also depends on how low the NAIRU is today and whether it is still changing. But it is quite clear that the other source of supply shocks--the relative price shocks--have all dissipated or reversed, raising the risk of higher inflation going forward. In addition, it would take a rather large additional increment to productivity growth to prevent the diminishing effect from this source from causing some uptick in inflation. bog.frb.fed.us ______________________________________________________________________ An interesting picture of the unemployment rate! <g> How low can we go? stls.frb.org Cheers, Lee