Advance warning and so i am joined here by olivia who is now at the Peterson Institute and loretta who is the president of the Federal Reserve bank in cleveland and grenade the former fed chairman and paul crewmen the economist and Senior University of new york and columnist for the New York Times and he is the guy who make all journalists nervous because he seems to be more productive than the rest of us and that is kind of frightening given that he does all these other things at the side but we can discuss that later so i wanted to start by asking each of the panelists a little bit about what they took away from the conversation we had this morning. I want to start with olivier who made the observation, him inside the you see behind us about how they behave, perhaps one in this expected but prices arent rising so the question is, what the hell is going on . So i had prepared a slide in anticipation and i think it has survived the previous three hours fairly well and coincides with the general message and tells us what we need to look and, this one it is familiar but it basically has an Unemployment Rate and employment cost index and i think it is, there you could plotted in this get a diagram and it is consistent with everything we heard, now what people have put on the righthand side typically is the price, what i have done instead is plot the Wage Inflation using an employment cost index which is the blue line and the gdp price inflate or, for the purpose of thinking of markups is more valuable, this is what we produced and basically its visually striking, which although we saw from the previous graph the inflation was okay, and that doesnt seem to be much of it between the gdp price in flatter and the employment cost index, its where they disconnect, people have talked about this but there is more than, that there is other variation that, in the price index which is not coming from the cost index so there are two dimensions, so starting with, this my reactions today, so i think the first puzzle is the slope of a relation between Wage Inflation, and unemployment and i think we are not clear about where the stop has declined or not, my sense from my own regressions is that it has but someone argued if you do it why is it remains more or less the same, i think it has decreased, and the explanation i think is very plausible subject that i suggested and it seems to work, the other is that maybe there has been a change in the bargaining structure, take the case and if you think about the ranch from the match and the workers are already at the bottom and in their zoning that they can be done to decrease their wage, so if everyone is paid the minimum wage then we would find no effect of unemployment from wages, so i think there is Something Like this happening i dont think we saw this one and we need to do it, on the markup and the second graft, what is, it whats going, on i suspect measurement is a big part of, it the more you know about gdp inflation the more youre worried, the, we have heard explanations about pricing, i think some of them say well some sectors really have to take the International Prices given and therefore you will not see this pass through, thats not true for all sectors so i think we need to do this in the same way was done and try to understand it but again it there is still work should be, done and on the theme of the panel this, this stability of the curve and the price flips curve has a big implication and that hasnt been examined and should probably have been in the context of thinking what they should do, to have a Wage Inflation target, and its clearly much more related than, so from an empirical point of view it seems like a better measure to look like but from a normative point of view, if you take this and the markups reflect distortions then actually its a good idea to take a measure that doesnt have a markup in it, mainly the wages and focus on these, but the cpi moves around so we had talked over dinner and said that we would write something together, they have been busy but i think its still worth exploring, politically telling people that they care about wages, because ways inflation is part of it. Its tightening because wages are rising . Wage in inflation is something, and productivity is part of it and thats consistent with the price level correctly measured of about two, im more of the hawkish side these days. So ive noticed that in a number of presentations over the recent months you have a lot of things, if its the case that non monetary factors are holding back than inflation and it is a different implication for policy than if its an aggregate demand, so im curious about all the evidence weve heard this morning, about whats driving inflation in the work that youve done and youre people have done, what explanations do you have for what we have seen. So there is a sign that said for every problem there is a simple elegant solution thats wrong so there is no simple one word answer to this so yes our Inflation Research center is doing on a work in trying to understand inflation dynamics, so we have resolved that if you look at the structural part it is related to the cyclical part or a cyclical part, so there are prices that move with it and the a cyclical, health care which is the big part of it, other parts of arent really related, the cyclical part is only 40 of inflation now. So part of whats going on is that you have idiosyncratic factors that affect the labor market, and fact the inflation rates, but if you do just look at the cyclical part it certainly correlated with tightness in the labor market if it there are these a cyclical factors affecting inflation, so i think you want to be careful about sort of trying to explain everything with whats going on in the labor market, so that means that if you see a shock it may take longer to get back to youre inflation target that it would otherwise from policy and explaining Communications Point of view, you may want to think about a range as opposed to a point target because you have the shock that are going to move inflation off your target even if youre trend inflation rate is moving up, so there are implications about how you think about, how you communicate your target and i think the results that we saw today are very provocative in the sense that it makes you think about a different way of communicating and perhaps a different way of thinking about the interplay of expectations and your target. So from my point of view you might have shocked stamp inflation off your trend but the trend underlying inflation rates so i agree with the remark that janet made earlier that the stability of Inflation Expectations is key, allowing you to run your policy, i think the Amazon Effect and the fact that pricing models are changing our very interesting because if its true that prices are becoming more flexible, if you think about the model, why is Monetary Policy able to cushion against, these shocks on the real side its because of prices, if they become less sticky and there is more frequent price changes that means Monetary Policy is less effective more said differently you have to move it more to have a similar effect, so again in changes, these underlying structural changes that are more important than just how you measure inflation and they may actually change the transmission mechanism. Then are you convinced that something has changed in the structural side of unemployment or is it just that for some of this weve had wise Monetary Policy makers and everything is all the same the only thing that has changed is the quality of the policy. Everybody is laughing, thats actually my opinion, i think the most important factor over the long haul has been changing, not wiser policy but the one about inflation and they had a nice paper where they study the dynamics of inflation using ana observed model and the basic message was 30 or 40 years ago if there was a shock to inflation, a significant part of it was permanent, it would stay away for a period and since the nineties its transitory and its consistent with the world in which Inflation Expectations have been well anchored and the tense we are transitory is long as the policy is consistent with, that and their way to think about it the in dodging idea policy, i think its very complimentary, on the one hand Inflation Expectations or well anchored that policy can succeed in keeping it a target and vice first out if policies committed then it tends to be well anchored so i think that explains the broad changes in the appalachian paul takes, so in recent behavior, part of the reason it didnt fall so much is because of Inflation Expectations, they did fall some extent, we have seen some extent which is probably why inflation has been slow to come up, having said that i think there are interesting points me today, for example clearly part of the reason inflation has been slow to come up is the fed underestimated how far the labor market can be pushed, you have unemployment and they give some scope for further expansion in the labor market, some of the points that christian made about the factors that kept inflation from falling quite so much after the panic are relevant so there is a bunch of in any short period there is gonna be a part of idiosyncratic factors that are relevant, i think over a lot are true period the change in Monetary Policy, is the most important thing but these are relevant to the which has a huge bearing on policy and i wanted to Say Something about oliviers proposal because i have thought something along the same lines and then kind of backed off it even though the economics seems to be right and here is the point. Targeting wages is what we are talking. About there is one thing and nobody really talked about it here, and here Success Story for a conventional Monetary Analysis over these past ten years have been the current headline inflation, and im sure ben remembers is more than i, do we remember 20, ten 2011 when inflation was going mostly because of oil prices and the fed was saying, calm down, core inflation that we should be looking at and was totally vindicated in that but we now see there is stuff going on even with coordination measure but if we think about conceptually what we mean about core we mean stop this thing out there, it is Wage Inflation so it makes a lot of sense to target wages except im trying to imagine a situation of the chair of the feds saying we are raising Interest Rates because wages are rising too fast, i think its good economics but the political economics is going to be disastrous, and i think saying we are committed to make sure that wages increase no matter what 3 . I think, i think its not just 40 but a large proportion as a whole that doesnt get messages. Then youre body language suggested that you had this rule. I wouldnt want to see it in front of congress and say that we are very concerned that wages are rising too quickly, thats a concern, i think its a complicated question, theres elements of the price process is independent of the market and i think you have to factor in the Monetary Policy as well. It seems that at the same time we have had a long period of low target inflation in many countries around the world, we have also seen this decline in our star, the socalled natural rate of interest, the one that will come out when all is calm, we dont know what it is but there is certainly right spread contest in that it has fallen on, and it seems that this is, the two questions, are these things related, secondly this is kind of, challenging how should Monetary Policy think about a world where inflation for now seems to be low and the natural way of interest is also potentially low. So i have, as you might guess a facetious answer to the first part, it looks like you star and our, star these things exist and were not even sure about that unless both of them have fallen but why has this gotten that and the answer is, we dont know, and why has our story gone down, so both of them are caused by we really dont know, the, i thought the answers, it always has nothing to do with demography, that was the next, thing if i had to make up a story out a demography but you could make a story along those lines and the fact that it is holding up better makes it harder to tell, its just a more experienced bolder workforce that should be showing up, it is the last dramatic part of the story but i buy the demography on this, i think thats right but what i would take from in his luck, it seems quite possible that there is still quite a lot of slack in the advance world as a whole, and it looks like there is little monetary space which should give us a lot of anxiety, we should be worrying a lot because if we are in this situation now where nothing has in happened lately then we are in big trouble if sooner or later something will happen so the two factors together meaning that we should be worried a lot about what we can do to get more space for a policy response that will get us to some of the questions that you got towards targeting and fiscal policy. I think it is a big worse than we dont know. I think it is a weak bargaining fundamentally and that seems to be good news for the other side, the profit side and so in that light i think the decrease is even more of a puzzle. So loretta fortunately you have to make decisions with the information. I guess im going to push back a little bit on the fact that we have all the slack still out there, if you talk to firms, in fact we had a panel yesterday they routinely tell us, this is been going on for several years about the difficulty of finding or people that they can hire, you go back and say, okay are you raising ranges, they say yes but then thats changing now now theyre basically saying that its not really worth trying to hire, of the pool that still out there because when they do bring them and they dont stay on staff more than a month, so i said dont you know where they are going and they had no idea, so what is the response, now it is they are going to start arguing more and you see that more and so i think i would say we have done a lot in terms of running policy much more accommodating than we did in the past, partly thats because we brought down our estimates, so if someone were to say relative to the old to use we are running the economy very high, the policy is much more accommodating than it would be an alternative role so i think we have taken on board some of the things you talk about in terms of we have to rethink when we dont see wages going up, we have to rethink our policy and i think we have done that but at some point there are consequences of a policy like that so you may be ending up with a long Term Employment growth because if youre making more than we want to have a demand for so very sympathetic for wanting to be a maximum implemented, thats really our goal, its not going to affect the overall labor market in the way that you want to, i think in terms of the things that we talked about in the district, job programs getting people the skills that they need to run those rowboats in getting to these plans, all of them were gonna have a much bigger impact on Public Welfare in terms of getting people to, work there is a whole other set of issues on how to get people to work which is another issue, transportation is an issue, so there are a lot of structural things that nothing to do with Monetary Policy that can improve. I dont understand the problems, around the economy high, workers that we, volleyball lots of labors, way dirty, rise from start to automated which increases productivity growth and youre worried that were added jobs. Im worried that there is gonna be a whole segment of the population, right now they dont have the skills that are in demand so what happens to those, people unless you are training them then you are in trouble, we have had a shift in our Interest Rate from manufacturing to other types of jobs, there is a mismatch between the skills that people have and the skills on demand and unless were doing something about that its going to be very hard to improve so i think thats one of the things that they have been doing around the district, we have heard time and time again, they are not concerned they are much more concerned about in my gonna be able to provide food on the table for my family, so we have to think about what tools we use for which one we are trying to effect. Can i stir back to the charging combination of low neutral rates and inflation, what is the right response and does it matter where youre starting points are, inflation is getting close to 2 , japan is, their Inflation Expectation is still below, 1 whats the radiance or. Let me start by saying that it is mostly understandable, i think investment patterns, technology, all those things that a lot of people have talked about, i think they can explain most of what has gone on, so i think i understand that its something outside of Monetary Policy but it is also constrains the policy, and do i do it and she hatful response, there is this points that historically the fed is cut, five and a half Percentage Points and now we only have supposedly three Percentage Points of room, so work im doing it thinking about this is the appropriate use for guidance, using some of these tools plus thinking about different frameworks, i think they add about three Percentage Points of space, so my sense is as long as the rates are two and a half to three, Something Like that that they will be able to do most of what i could be able to do at any point in history in terms of using traditional policy rules, so i think say that we are now basic