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Natural Concepts in Macroeconomics

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Abstract

Ragnar Frisch proposed in 1936 a procedure for estimating natural variable values by modifying what are now called structural macroeconometric models. This paper shows that Frisch’s procedure can be used to illuminate natural concepts using today’s models. The procedure also forces one to be precise regarding the assumptions used in moving from a short-run model to a medium-run or long-run model.

Suggested Citation

  • Ray C. Fair, 2005. "Natural Concepts in Macroeconomics," Cowles Foundation Discussion Papers 1525, Cowles Foundation for Research in Economics, Yale University.
    • Handle: RePEc:cwl:cwldpp:1525
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    References listed on IDEAS

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    1. Fair, Ray C, 1978. "The Sensitivity of Fiscal Policy Effects to Assumptions about the Behavior of the Federal Reserve," Econometrica, Econometric Society, vol. 46(5), pages 1165-1179, September.
    2. Bomfim, Antulio N, 1997. "The Equilibrium Fed Funds Rate and the Indicator Properties of Term-Structure Spreads," Economic Inquiry, Western Economic Association International, vol. 35(4), pages 830-846, October.
    3. Hahn, Frank, 1990. "On Inflation," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 6(4), pages 15-25, Winter.
    4. Athanasios Orphanides & John C. Williams, 2002. "Robust Monetary Policy Rules with Unknown Natural Rates," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 33(2), pages 63-146.
    5. Thomas Laubach & John C. Williams, 2003. "Measuring the Natural Rate of Interest," The Review of Economics and Statistics, MIT Press, vol. 85(4), pages 1063-1070, November.
    6. Douglas O. Staiger & James H. Stock & Mark W. Watson, 1997. "How Precise Are Estimates of the Natural Rate of Unemployment?," NBER Chapters, in: Reducing Inflation: Motivation and Strategy, pages 195-246, National Bureau of Economic Research, Inc.
    7. Orphanides, Athanasios & Solow, Robert M., 1990. "Money, inflation and growth," Handbook of Monetary Economics, in: B. M. Friedman & F. H. Hahn (ed.), Handbook of Monetary Economics, edition 1, volume 1, chapter 6, pages 223-261, Elsevier.
    8. Ragnar Frisch, 1936. "On the Notion of Equilibrium and Disequilibrium," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 3(2), pages 100-105.
    9. Kuttner, Kenneth N, 1994. "Estimating Potential Output as a Latent Variable," Journal of Business & Economic Statistics, American Statistical Association, vol. 12(3), pages 361-368, July.
    10. Robert J. Gordon, 1998. "Foundations of the Goldilocks Economy: Supply Shocks and the Time-Varying NAIRU," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 29(2), pages 297-346.
    11. Watson, Mark W., 1986. "Univariate detrending methods with stochastic trends," Journal of Monetary Economics, Elsevier, vol. 18(1), pages 49-75, July.
    12. Peter K. Clark, 1987. "The Cyclical Component of U. S. Economic Activity," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 102(4), pages 797-814.
    13. Lucas, Robert Jr, 1976. "Econometric policy evaluation: A critique," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 1(1), pages 19-46, January.
    14. Edmund S. Phelps, 1968. "Money-Wage Dynamics and Labor-Market Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 76(4), pages 678-678.
    15. Lucas, Robert E, Jr, 1981. "Tobin and Monetarism: A Review Article," Journal of Economic Literature, American Economic Association, vol. 19(2), pages 558-567, June.
    16. Taylor, John B., 1993. "Discretion versus policy rules in practice," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 39(1), pages 195-214, December.
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    Cited by:

    1. Bårdsen, Gunnar & Nymoen, Ragnar, 2006. "U.S. natural rate dynamics reconsidered," Memorandum 13/2006, Oslo University, Department of Economics.

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    More about this item

    Keywords

    Natural concepts; Equilibrium;

    JEL classification:

    • E00 - Macroeconomics and Monetary Economics - - General - - - General

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