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Thursday, September 01, 2005


Edward Hugh

"Instead our staffs employ models of varying complexity in which potential output and the natural rate of unemployment evolve stochastically in the way modern macroeconomic thinking suggests and also rely heavily on other sources of information, including a whole range of official data and business surveys."

Well quite, and here I entirely agree with Bean. You don't simply follow a mechanical rule, you have a committee, you consult a range of estimates and data sources, people try to give intuitive weights, and then you vote. This is why Greenspan at his best is irreplaceable, and why, at the end of the day, there is much more of art than science involved in good central banking.

"Instead our staffs employ models of varying complexity.."

This is the alchemy bit, maybe they chant a strange mantra while doing it :).

"Bob is certainly right to highlight the fact that potential output is not a smooth trend and that the natural rate of unemployment and the neutral rate of interest are not constants"

Doesn't Hall imply that more than being not constants, they are fictions, convenient (Bean) or inconvenient (Hall) ones?

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