Today we have a guest contribution written by Jeffrey Frankel, Harpel Professor of Capital Formation and Growth at Harvard University, and former Member of the Council of Economic Advisers, 1997-99. This post is an extended version of a column that appeared in Project Syndicate.
Food for thought over the long weekend.
World field production of crude oil increased 2.9 million barrels a day in the 12 months ended last July. That compares with a 3.6 mb/d increase over the entire nine years from Jan 2005 to Dec 2013.
That’s the headline on this afternoon’s release from the Wisconsin Department of Workforce Development. While completely accurate, the summary leaves a just a little context out…
Compared against Minnesota, Kansas, California, and the Nation
There are various ways of estimating potential output. I typically refer to the CBO’s estimates, which are basically a production function approach (use trend labor and capital stock, and total factor productivity growth, to infer potential output). However, An alternative is to examine price pressures to infer potential output, as in Ball and Mankiw (JEP, 2002).
One of the arguments for acting sooner rather than later on monetary policy is that if the slack disappears, inflationary expectations will surge. That’s represented in this quote from reader Peak Trader’s comment. While I don’t rule out this possibility, it seems reasonable to me to empirically assess whether this is true for the United States over the past thirty years.