TECHNOLOGY-DRIVEN FORECASTS, THE PHILLIPS-CURVE, AND MONETARY POLICY-MAKING

The relationship between unemployment and the inflation rare is nonlin ear and negative within the shorter-run timespan of business cycles, b ut positive in the longer run, the two-generation period in which tech no-economic systems advance from innovation to market saturation. Mone tary policymaking in the United States utilizes forecasts based upon t he shorter term relationship, but these forecasts may be confounded by the countervailing long-wave relationship. This study presents a mode l that includes both the short- and long-term relationships and shows how inclusion of long-wave considerations changes preferred policy cho ices. (C) 1996 Elsevier Science Inc.