Other sources of inflation are the "Beer Game", dead old people, and monopolistic effects. Monopolistic effects are part of the Firm's sector; the monopolizers have admitted this in public. The Beer Game is part of supply shock. 1+ million people dead is part of labor shock. A lot of fast food etc. labor is people on Social Security, or people who relied on Grandpa to take care of the kids but Grandpa died. And then there's the proxy war.
In short, we have a lot of things going on that the PMC can't talk about, and economists are high-status members of the Professional-Managerial Class.
"Monetary policymakers should not base their expectations of the future path of inflation on the very poor signal in the tightness of domestic labor markets."
Anyway you didn’t answer my Q. So there was no relationship between Nauru and inflation 2008-2020. But now there is? Or is today’s inflation something novel?
Detrending (by first-differencing or otherwise) is meant to eliminate common trends that may confound the covariation of level variables (think of GDP and consumption expenditure). Fixed effects refers to the inclusion of controls in a regression:
X = ch. in unemp
Y = ch. in cpi
Z = country
Y = a + bX + cZ + error
is a regression model which says that Y is a function of X controlling for Z. When we say we admit country fixed effects, we mean that we have included country indicators in the regression. This is equivalent to allowing the intercept term, a, to vary by country (a_i).
Where is the evidence that “tight labor markets have historically always led to inflation”? Certainly not true over the past thirty years, as I’ve shown.
Other sources of inflation are the "Beer Game", dead old people, and monopolistic effects. Monopolistic effects are part of the Firm's sector; the monopolizers have admitted this in public. The Beer Game is part of supply shock. 1+ million people dead is part of labor shock. A lot of fast food etc. labor is people on Social Security, or people who relied on Grandpa to take care of the kids but Grandpa died. And then there's the proxy war.
In short, we have a lot of things going on that the PMC can't talk about, and economists are high-status members of the Professional-Managerial Class.
"Monetary policymakers should not base their expectations of the future path of inflation on the very poor signal in the tightness of domestic labor markets."
Depends on what the desired outcome is.
Anyway you didn’t answer my Q. So there was no relationship between Nauru and inflation 2008-2020. But now there is? Or is today’s inflation something novel?
Probably won't matter much but how do you include fixed effects on first differenced variables?
Yes. Fixed effects are included in the panel regressions.
But first differencing is meant to eliminate the fixed effects. What am I missing?
Detrending (by first-differencing or otherwise) is meant to eliminate common trends that may confound the covariation of level variables (think of GDP and consumption expenditure). Fixed effects refers to the inclusion of controls in a regression:
X = ch. in unemp
Y = ch. in cpi
Z = country
Y = a + bX + cZ + error
is a regression model which says that Y is a function of X controlling for Z. When we say we admit country fixed effects, we mean that we have included country indicators in the regression. This is equivalent to allowing the intercept term, a, to vary by country (a_i).
Except tight labour markets have historically always led to inflation. Wages are the largest component of inflation.
While the Philips Curve has been unusually flat in recent history this does not mean the link is broken forever.
You can’t have it both ways. When the Phillips Curve flattened out between 2008-2020 you argued it was broken.
Labour markets were tight but there was no inflation to be seen anywhere. A puzzle
Now that inflation is rising alongside wage growth you say it’s irrelevant.
Which one is it?
Where is the evidence that “tight labor markets have historically always led to inflation”? Certainly not true over the past thirty years, as I’ve shown.
Do I really have to trawl the internet for you? The amount of literature on the relationship between NAIRU and inflation is huge
Here’s one for you
https://www.chicagofed.org/~/media/others/events/2019/monetary-policy-conference/how-tight-labor-market-abraham-haltiwanger-pdf.pdf
Bravo! 👏 Perfectly articulated