Comment on Rudebusch and Williams, “A wedge in the dual mandate: Monetary policy and long-term unemployment”

Rudebusch and Williams (2015) conclude “A wedge in the dual mandate: Monetary policy and long-term unemployment” with the policy prescription “Optimal policy should trade off a transitory period of excessive inflation in order to bring the broader measure of underemployment to normal levels more quickly." The question that I address is whether our knowledge of the dynamics linking monetary policy, inflation and real growth is sufficiently well-developed that policy recommendations of the sort that Rudebusch and Williams proffer can be effective. I present two bodies of empirical evidence pertinent to this issue. The first has to do with the Phillips Curve itself; the second with the class of models now used to analyze the economic effects of monetary policy.