Despite widespread use by commentators and policymakers, the models commonly used to argue for the importance of "inflation expectations" are difficult to confirm empirically, and risk a hawkish policy bias.
Whenever inflation becomes a part of political or economic discourse, policymakers and commentators instinctively reach for narratives and models drawn from the experience of the 1970s inflation. However, these models offer little explanation for even adjacent experiences of inflation.
Creative approaches to financing investment in public assets and the private sector abound throughout American history. The New Deal, the CARES Act and other legislation have made use of government corporations, equity purchases and loan guarantees to generate durable and appreciating public assets.
Given the Fed’s recent framework revisions and forward guidance commitment to maintain current interest rates until “maximum employment” is achieved, the Fed’s communication with respect to its assessment of “maximum employment” is overdue for a clarification.
Throughout our series on semiconductors, we have used the semiconductor industry to explore big questions in economic theory and industrial policy. Today, we offer a positive account.