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MACK: I want to focus on the issue I seem to always focus on and that’s the issue of price stability and inflation. Some people believe that the unemployment rate needs to go to 5 percent in order to prevent inflation. I guess that’s referred to as a so-called NAIRU theory. We’re presently at 4 percent, so that would mean we’d have to, over time, see the unemployment rate rise back to 5 percent. I’ve gone back and looked since the 1940s, and every single time that we’ve had an unemployment rate go up by 1 percent, whether that was over a one-year period, two-year period, three-year period, four-year period, we’ve had a recession. So, you know, that theory concerns me. And I guess my question is, in your view, can we achieve price stability with employment at 4 percent or do we need to move the unemployment rate back higher in order to achieve price stability?
GREENSPAN: I think the evidence indicating that we need to raise the unemployment rate to stabilize prices is unpersuasive in my judgment. It’s a major issue in the economics profession, under significant debate. My forecast is that the NAIRU, which served as a very useful statistical procedure to evaluate how the economy was behaving over a number of years, like so many types of temporary models which worked, is probably going to fail in the years ahead as a useful indicator, at least in anywhere near as useful indicator, as it was through perhaps a 20-year period up until fairly recently.
MACK: Is the question-and-answer sessions of the chairman with the Congress made available to the other members of the Federal Open Market Committee?
GREENSPAN: They are in the public record, and if you want to...
MACK: I would think it would be helpful if it were made available to the other members of the Open Market.
BAYH: Well, let me just — more specific, I think at the beginning you started to address the question, and I gathered from your response to the early part of the question, you believe that you can maintain price stability, you can — with unemployment at 4 percent.
GREENSPAN: I don’t know that for sure. Indeed, in my prepared remarks, I did indicate that that is an open question. I suspect, yes, but I must say that the evidence on either side of this question is not yet of sufficient persuasiveness to convince everybody.