10.17889/E111180V1
Blanchard, Olivier
Replication data for: Should We Reject the Natural Rate Hypothesis?
ICPSR Inter-university Consortium for Political and Social Research
2018
10.1257/jep.32.1.97
10.1257/jep.32.1.97
1
Fifty years ago, Milton Friedman articulated the natural rate hypothesis. It was composed of two sub-hypotheses: First, the natural rate of unemployment is independent of
monetary policy. Second, there is no long-run trade-off between the deviation of unemployment from the natural rate and inflation. Both propositions have been challenged.
The paper reviews the arguments and the macro and micro evidence against each. It concludes that, in each case, the evidence is suggestive, but not conclusive. Policymakers
should keep the natural rate hypothesis as their null hypothesis, but keep an open mind and put some weight on the alternatives.