Should We Reject the Natural Rate Hypothesis?

Olivier Blanchard

Journal of Economic Perspectives, 2018, vol. 32, issue 1, 97-120

Abstract: 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.

JEL-codes: B22 B31 E24 E31 E52 (search for similar items in EconPapers)
Date: 2018
Note: DOI: 10.1257/jep.32.1.97
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Citations: View citations in EconPapers (133)

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