Why Not Target Wage Rather than Price Inflation?

Olivier Blanchard speaks on a panel about low inflation rates and the implications for policy at the Brookings Institution event “What’s (not) up with inflation?” on October 3, 2019. He finds the relation between wage inflation and unemployment is strong, and the relation between price inflation and unemployment much weaker. This tighter relationship means wage inflation is a much better signal of the state of the labor market and adds on both empirical and theoretical grounds to a strong case for targeting wage inflation.

Watch the full panel remarks here.

PIIE thanks the Brookings Institution for permission to repost video.