Should we Get rid of the Natural Rate Hypothesis?
Olivier Blanchard ()
No 24057, NBER Working Papers from National Bureau of Economic Research, Inc
50 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. Policy makers should keep the natural rate hypothesis as their null hypothesis, but keep an open mind and put some weight on the alternatives.
JEL-codes: E30 E31 E32 E52 (search for similar items in EconPapers)
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