Monetary Equilibrium and the Productivity Norm of Price-Level Policy

Now that the Phillips curve has disappeared, leaving an “empty place where it used to be” (Leijonhufvud 1981, p. 276), economists must come face to face with the problem of deciding how the price level ought to behave. They can no longer treat price-level policy as incidental to employment policy. Yet,rather than becoming an object of economic controversy, the place left vacant by the Phillips curve has become the exclusive, if somewhat barren, grazing ground of advocates of a stable consumer price level. These advocates appear to be winning the macroeconomic policy battle by default. The only challenge now facing them seems to be that of implementing pricelevel stabilization by means of a strict and unambiguous policy mandate.