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  • Editors' Summary
  • Douglas W. Elmendorf and William G. Gale

The brookings panel on economic activity held its eighty-fourth conference in Washington, D.C., on September 6 and 7, 2007. The conference was a celebration in honor of William Brainard and George Perry, who retired this year as editors of the Brookings Papers on Economic Activity. Perry is a senior fellow at the Brookings Institution and had edited the journal since its inception in 1970. Brainard is the Arthur Okun Professor Emeritus of Economics at Yale University; he joined Perry as editor in 1980 after the death of Arthur Okun, the other founding editor.

George Perry and Bill Brainard made the Brookings Papers on Economic Activity one of the premier economic journals in the country. For almost four decades, the Brookings Papers has presented research on current, large-scale issues in macroeconomics, broadly defined. The analysis typically has been empirical, has taken real-world institutions seriously, and has been relevant to economic policy. In many respects the Brookings Papers has stood at the intersection of research and policymaking, encouraging economists to apply the profession's best knowledge to important policy issues and to use policy concerns as a spur to research that illuminates fundamental aspects of behavior. With insight and energy, Brainard and Perry recruited authors, offered counsel on their research, chose incisive discussants and Panel members, and edited and reedited papers for substance and clarity. Their skilled and dedicated stewardship enabled the Brookings Papers to play a central role in the economics profession and to have tremendous influence on the conduct of economic policy.

The celebratory conference in September was structured differently from usual meetings of the Brookings Panel. At the conference dinner, several long-standing participants reviewed the history of the journal and offered personal appreciations for the contributions of George Perry and Bill Brainard, and of Arthur Okun as well. This issue of the Brookings Papers begins with two of these sets of remarks, given by Robert Gordon [End Page ix] and Robert Hall. For the conference papers we asked leading scholars in a number of fields within macroeconomics to summarize the evolution and state of knowledge in their areas or to highlight new perspectives and intellectual challenges. The ten papers in this issue respond admirably to this request, offering provocative views about business cycle dynamics, inflation and unemployment, monetary and fiscal policy, financial markets, international capital flows, earnings inequality, time allocation, and the effect of energy shocks. The papers had no formal discussants, but a synopsis of the general discussion is included after each paper.

Robert Hall's paper on what he calls the "modern recession" begins with the observation that employment fell as far below trend during the past two recessions as in earlier recessions, even though output did not—that is, productivity did not decline in the two recent recessions the way it did in earlier ones. Hall also shows that the softening of the labor market during modern recessions is caused by declines in the job-finding rate for the unemployed rather than increases in the rate of job loss, and that all sectors of the labor market slacken simultaneously during modern recessions, as in earlier ones.

To explain the volatility of unemployment, Hall argues that the Mortensen-Pissarides model of job search and matching "holds out the tantalizing possibility of an equilibrium theory without excessively elastic labor supply." In particular, reducing the flexibility of the wage bargain between firms and workers in this model would allow small productivity fluctuations to generate realistic movements in unemployment. The paper reviews several ways of diminishing this flexibility. However, Hall warns that even this approach could not explain the past two recessions, in which productivity did not fall.

George Akerlof and William Dickens reconsider the macroeconomics of low inflation, a subject they explored in two earlier Brookings Papers with George Perry. In "The Macroeconomics of Low Inflation," the three authors examined the consequences of downward nominal wage rigidity; in "Near-Rational Wage and Price Setting," they examined the consequences of people thinking in nominal rather than real terms when inflation is very low. In both papers a trade-off emerges between inflation and unemployment in the...


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