June 2021 issue contents
Central Bank Communication and Disagreement about the Natural Rate Hypothesis

Carola Conces Binder
Haverford College


About half of professional forecasters report that they use the natural rate of unemployment (u) to forecast. I show that forecasters' reported use of and estimates of u are informative about their expectations-formation process, including their use of a Phillips curve. Those who report not using u have higher and less anchored inflation expectations, and seem to have found the Federal Reserve's state-based forward guidance less credible. The Federal Open Market Committee (FOMC) publishes participants' projections of longer-run unemployment in the Summary of Economic Projections. I document how and when the FOMC participants have disagreed with each other and with the private sector, discussing possible sources of disagreement and implications for credibility.

JEL Code: E52, E58, E43, D83, D84.

Full article (PDF, 43 pages, 3.2 mb)