Inflation, Unemployment, and Monetary Policy

by Robert Solow, John Brian Taylor

Edited and with an introduction by Benjamin M. Friedman The connection between price inflation and real economic activity has been a focus of macroeconomic researchand debatefor much of the past century. Although this connection is crucial to our understanding of what monetary policy can and cannot accomplish, opinions about its basic properties have swung widely over the years. Today, virtually everyone studying monetary policy acknowledges that, contrary to what many modern macroeconomic models suggest, central bank actions often affect both inflation and measures of real economic activity, such as output, unemployment, and incomes. But the nature and magnitude of these effects are not yet understood. In this volume, Robert M. Solow and John B. Taylor present their views on the dilemmas facing U.S. monetary policymakers. The discussants are Benjamin M. Friedman, James K. Galbraith, N. Gregory Mankiw, and William Poole. The aim of this lively exchange of views is to make both an intellectual contribution to macroeconmics and a practical contribution to the solution of a public policy question of central importance.

Genres: Economics

130 pages, Paperback

First published January 1, 1998

About the author

Robert Merton Solow was an American economist who received the Nobel Memorial Prize in Economic Sciences for the development of a mathematical model for economic growth. He based his model on the earlier Harrod-Domar model but incorporated a significant difference in his own model. This difference lay in the fact that Solow assumed that full employment could be achieved by adjusting the wages given to the workforce. His theory totally contradicted the earlier theory that the economy was facing a great crisis. He soon followed with another theory that labor and capital were not the only two factors required for economic growth as was believed by economists till then. He suggested that a third factor has to be considered if the rate growth is to be calculated in real terms. This factor is called the ‘Solow residual’ which can be attributed to the technical changes that are required for healthy economic growth. He also developed a new model which made new capital more important than old capital which is based on the technology prevalent at the time. With new capital more changes could be brought about in the technological field. His articles on economic growth brought about a huge change in the perspectives that economist had till then about the realities of economic growth.

Reviews

[Liquidlasagna]

A nice short interesting debate on the risks of high unemployment on nations and their economies

Solow, Galbraith's son and Mankiw all get to dogpile each other

[Richard Marney]

Beyond the incisive economic analysis, a crisp and readable narrative prepared by one of the giants of the profession.