Transcripts of the monetary policymaking body of the Federal Reserve from 2002–2008.

Okay. The other question is about exhibit 8, where you consider a simulation with a decline in productivity and an increase in labor participation and you get a higher rate of core inflation. In that simulation, the decrease in productivity and the increase in participation offset each other, on both the aggregate demand side and the aggregate supply side, and the result is, of course, that the unemployment rate doesn’t change so that demand-supply balance is unchanged. I assume the reason you get inflation is that nominal wages are sticky, and therefore, as productivity slows, labor costs go up and firms can push them through. I guess I would question whether that’s realistic, for two reasons. One is that this increase in unit labor costs is clearly temporary, and I think we tend to believe that longer increases are needed to affect pricing. The other reason is that with the demand-supply balance unchanged, why would firms be able to pass through those costs in this scenario when they couldn’t raise prices absent that increase in unit labor costs?

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