General Discussion : Monetary Policy and the Well - Being of the Poor

Mr. Romer: One comment of Alan Blinder’s that we want to respond to concerns the question of how much emphasis the central bank should put on unemployment. Alan wasn’t clear, at least to me, about the distinction between stabilization on the one hand and erring on the side of low unemployment on the other. Nothing we’ve said implies that Alan Greenspan’s role as a fine-tuner is not very important. Our long-run evidence says that greater stability is good for the poor. And concerning the short run, if you swing the economy through big booms and recessions, then as Alan said, if you have a nonlinear Phillips curve, that would raise average poverty. So we didn’t mean to say, and we don’t say, that you shouldn’t worry about keeping the economy stable. Now I couldn’t quite tell whether Alan was saying that these are arguments for erring toward low unemployment. He argued that these considerations mean that Alan Greenspan’s role in preventing recessions is very important. But they also mean that his role in preventing the economy from overheating is very important. So they don’t provide a reason for concluding that central banks should err on the side of avoiding unemployment.