natural rate and large real-time errors in estimates of the natural rate uprooted heretofore quiescent in inflation … inflation expectations would have remained anchored and the stag inflation of the 1970s would have been avoided. Indeed, we find … that less activist policies would have been more effective at stabilizing both in inflation and unemployment. We argue that …

private learning and misperceptions of natural rates call for greater policy inertia, a more aggressive response to inflation …