A roundup of economic news from around the Web.
- Natural Unemployment: Writing for voxeu, Roger Farmer provides an interesting video graphic and analysis of the idea of a natural rate of unemployment. “Most policymakers subscribe to the existence of a natural rate of unemployment. This column provides a visual history of unemployment, vacancies, and inflation in the U.S. and says there is no natural rate. It suggests the economy can rest in any equilibrium on the Beveridge curve, as decided by the confidence of households and firms that pins down asset values.”
- Fed and Bubbles: David Leonhardt of the New York Times argues that the Fed’s history spotting bubbles makes it difficult for the central bank to seek more authority. “Whats missing from the debate over financial re-regulation is a serious discussion of how to reduce the odds that the Fed however much authority it has will listen to the echo chamber when the next bubble comes along. A simple first step would be for Mr. Bernanke to discuss the Feds recent failures, in detail. If he doesnt volunteer such an accounting, Congress could request one. In the future, a review process like this could become a standard response to a financial crisis. Andrew Lo, an M.I.T. economist, has proposed a financial version of the National Transportation Safety Board an independent body to issue a fact-finding report after a crash or a bust. If such a board had existed after the savings and loan crisis, notes Paul Romer, the Stanford economist and expert on economic growth, it might have done some good.”
- Stimulus Clouds: On his Fed Watch blog, Tim Duy wonders what will happen to the economy as monetary and fiscal stimulus fades. “The economy is gathering steam. Can’t deny it. But the clear path to sustained recovery remains clouded by government stimulus, both in the US and abroad. Few policymakers are confident that economic activity can stand on its own as stimulus fades, leaving the Fed disinclined to rush for the exits given existing forecasts. Indeed, there is reason to believe based on Taylor Rules that interest rates should be held at the zero bound through 2010 and beyond. But policy mistakes happen. And FOMC worries about the timing of withdrawal could be the basis for such a mistake if near term activity accelerates rapidly and inflation expectations gain. The focus on the Fed may be misplaced; he FOMC is not the only policymaker that might upset the apple cart. The next negative shock might come from abroad.”
Compiled by Phil Izzo