In popular perception, the era since 2008 has been one of massive failure for economic analysis. The truth, as I’ve often tried to explain, is nearly the opposite — at least for those of us who didn’t forget Keynes, and took a more or less IS-LM-is model seriously. We’ve actually had a very good run, successfully predicting the quiescence of interest rates despite huge budget dheficits, the quiescence of inflation despite huge increases in the monetary base, and the adverse effects of harsh austerity policies.

A new post by Cecchetti and Schoenholtz on core inflation reminds me that this concept, too, has been a huge success.

Actually, I don’t think C&S get the argument for using some kind of core measure quite right, although their actual data analysis is fine. They simply assume that there is a problem of distinguishing between the signal and the noise, that for some reason there is an underlying trend that is imperfectly measured by the headline inflation rate. I prefer to think of it in terms of an underlying economic model, in which many but not all prices are temporarily sticky; as I explained some time ago, this implies that there is at any point in time a sort of “embedded” rate of inflation, and this — rather than short-term fluctuations — is what we’re trying to measure.

In any case, those of us who looked at core inflation came in for a lot of abuse during the “debasing the dollar” period of 2010-2011, when right-wingers were writing to Ben Bernanke to attack his policies and Paul Ryan was warning that rising commodity prices were the harbinger of runaway inflation. Assertions that fundamental inflation hadn’t gone up were met with ridicule and insults.

But sure enough, the commodity price effect on inflation was a blip, and went away. And the inflation hawks learned their lesson, and revised their models. Hahahaha — just kidding.