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Sunday, August 29, 2010

Stock and Watson: Inflation is Likely to Fall Even Further

Ben Bernanke certainly knows that the work of James Stock and Mark Watson is worth taking seriously. So why take this risk?:

Slack Could Lead to Sharper Inflation Decline, by Jon Hilsenrath, RTE: Inflation could fall much further in the next year, thanks to the enormous slack that built up in the U.S. economy during recession... Harvard University’s James Stock and Princeton’s Mark Watson — two respected econometricians... — project that the Federal Reserve’s favored measure of inflation could fall by 0.8 percentage points by the second quarter of 2011 from its 2010 second quarter rate of 1.5%, based on relationships they’ve drawn from past recessionary cycles.
Some measures of inflation are already below the Fed’s unofficial target of 1.5% to 2%. A decline to near zero, if it materialized, would likely be greeted with alarm at the Fed and would give officials added incentive to take new steps to forestall such a move. Fed Chairman Ben Bernanke said at the same conference today that the Fed is on guard against further disinflation. ...

    Posted by on Sunday, August 29, 2010 at 12:58 AM in Economics, Inflation | Permalink  Comments (13)


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