5/13/13

Why Gavyn Davies is wrong about employment targeting

Gavyn Davies criticises  the Fed for wrong money policy targeting on unemployment rate, UER,  instead of the rate of employment, E/P. He  is right  that the rate of unemployment does not express well the full  capacity of the economy. However, the rate of employment  is quite different from the UER. Two figures below do show that the UER has been varying around 5% to 7% since 1948. The Fed can claim that monetary policy is effective because UER is always back to 6%. How can they say that they control E/P if it really has a strong secular component. Gavyn puts the Fed in danger to be responsible for that they can not be responsible for. It will never happen if the Fed has a bit of sense. The rate of employment is out of control not only for the Federal Reserve but also for any authority.


 

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