Today we are continuing to talk about monetary policy. We have been discussing the issue of how the Federal Reserve Bank should respond to the extent of slack in the economy: when there is high unemployment, the Fed should be increasing aggregate demand, but at full employment more aggregate demand would lead to inflation. It is a difficult problem to find this balance because of lags in the process and host of measurement issues.
On Friday the Department of Labor of released its monthly report. What did we learn? Here we are at the Fed trying to make sense of the data. [Professor Feldstein is referring to the February 5, 2016 release by the Bureau of Labor Statistics.]
Continue reading “American Economic Policy, as told by Martin Feldstein at Harvard University: Lecture 7, Monetary Policy: Business Cycles and Inflation”