Empirical reality has told us that–at least when inflation is very low, as it is at present–the short-run is not less than five years but (shudder) can be as long as fifteen.
The full post, which offers more, is here.
That is exactly the kind of direct response I have been looking for, though I might get greedy and ask what makes inflation “very low.” Core inflation has now reached two percent and I can’t quite regard the non-core, which is higher at 3.8 percent, as totally irrelevant. (Why is it I hear Scott Sumner in my ear, and can you guess which four-letter abbreviation he is screaming out?)
In my view, supply-side factors are the main reason why the employment-to-population ratio has been so dismal since 2000, demand-side factors are the main reason why so many bad things have happened since 2007-2009, and supply-side factors and mismatched expectations are the fundamental reason why demand-side factors went south in 2007-2009.
It also seems to me that the long run comes more quickly when TFP is relatively high, which again brings us back, at least partially, to the supply side. This view is supported by theory. When the economy has a lot of broad-based technological innovation, at least somewhat evenly distributed, job creation is easier, income effects are more likely to positively cumulate, and monetary and fiscal policy are more likely to gain traction.
Part of me is willing to accept a linguistic bargain, something like the following: “I will admit that the short run can last for fifteen years, if we agree that TFP helps determine that horizon.” Another part of me then realizes that if the long run helps determine the relevance of the “short run,” the long run is always mattering. At which point I go back to believing that the traditional “old Keynesian” distinction between the long run and the short run is sometimes more confusing than illuminating.