Working Paper: NBER ID: w1326
Authors: Olivier J. Blanchard
Abstract: This paper examines, in light of the Lucas Critique, the behavior of the Phillips curve and of the term structure of interest rates after October 1979. It starts with an informal account of the policy change and then discusses how we might expect these two relations to shift after such a change. It finds little evidence of a direct effect of the policy change on the Phillips curve, at least until 1982. It finds substantial evidence of a direct effect on term structure.
Keywords: No keywords provided
JEL Codes: No JEL codes provided
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| October 1979 policy change (E65) | Phillips curve (E31) |
| October 1979 policy change (E65) | term structure of interest rates (E43) |
| agents' expectations (D84) | wage inflation (J31) |
| belief in policy change (D78) | short-term nominal rates (E43) |
| belief in policy change (D78) | long-term rates (E43) |
| labor market belief in policy change (J48) | long-term rates (E43) |
| forecast errors (C53) | inflation expectations (E31) |