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Topic: NAIRU

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Differences between the Natural Rate of Unemployment and the NAIRU

Phillips curve

Unemployment

Full employment

Inflation

Keynesian

Underemployment

Keynesian economics

Deflation (economics)

Reaganomics

Demand pull inflation

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	NAIRU
		On this issue, opinions widely diverge: in fact, there is no way to exactly estimate the value of NAIRU as the natural rate of unemployment is not constant but changes over time depending on the factors that determine the structural uenmployment rate of the economy.
		The Fed's Chairman (Greenspan) view on the current U.S. macro outlook and on NAIRU are presented in a speech he gave in December 1996, a more recent speech in September 1997 and his recent testimony in Congress.
		For two contrarian views arguing that the economy can grow faster than current rates without a resurgence of inflation and that NAIRU is lower than the present unemployment rate see an article by Robert Eisner and an article by Lester Thurow.
	pages.stern.nyu.edu /~nroubini/NAIRU.HTM (1157 words)

	FRBSF: Economic Letter - NAIRU: Is It Useful for Monetary Policy? (11/21/97)
		NAIRU is an acronym for "non-accelerating-inflation rate of unemployment" (a closely related concept is the "natural rate of unemployment").
		The NAIRU figures prominently in the Phillips curve, which is a relationship that incorporates a temporary trade-off between the unemployment rate and inflation.
		According to the Phillips curve, an unemployment rate that is below the level identified as the NAIRU (that is, a "tight" labor market) tends to be associated with an increase in inflation; conversely, an unemployment rate that is above the NAIRU tends to be associated with a decrease in inflation.
	www.frbsf.org /econrsrch/wklyltr/el97-35.html (2008 words)

	NAIRU
		The term NAIRU is an acronym for Non-Accelerating Inflation Rate of Unemployment.
		Their counter analysis was that government macroeconomic policy (primarily monetary policy) was being driven by an unemployment target and that this caused expectations to shift so that steadily accelerating inflation rather than reduced unemployment was the result.
		monetarists instead support the generalized assertion that the correct approach to unemployment is through microeconomic measures (to lower the NAIRU whatever its exact level), rather macroeconomic activity based on an estimate of the NAIRU in relation to the actual level of unemployment.
	www.ebroadcast.com.au /lookup/encyclopedia/na/NAIRU.html (289 words)

	Americans For Democratic Action and ADA Ed. Fund
		The result of reliance on the NAIRU as a monetary tool is that between early 1994 and February, 1995, the Federal Reserve Board raised the interest rate seven times, from 3.05 to 6.05 percent, even though inflation was at its lowest point in three decades.
		Reliance on the NAIRU paralyzes macroeconomic policy, and needlessly causes artificial unemployment, hardship, and misery for millions of Americans and for the country as a whole.
		The NAIRU should be rejected and the Fed should return to its statutory mandate of high growth and full employment.
	www.adaction.org /nairu.html (2406 words)

	NAIRU Estimation
		The estimation approach outlined in Equations 4-5 can be altered for the case where the NAIRU varies with time.
		and the estimate of the time-varying NAIRU is
		The SSW estimation equation for the spline approximated time-varying NAIRU is
	sekhon.berkeley.edu /nairu/node1.html (0 words)

	Regional Economist
		NAIRU is the unemployment rate that would result when the output gap is zero; that is, when the economy is growing at its potential with no unusual wage and price pressures.
		During the 1990s, the relationship between NAIRU and inflation disappeared, and the Phillips curve became a virtually flat line.
		But as the economy began to slow, eventually entering into a recession in July 1990, the FOMC reversed course, eventually reducing the target rate to 3 percent in September 1992, which is where it stayed until February 1994.
	www.stls.frb.org /publications/re/1999/d/re1999d4.html (1322 words)

	Julkaisut (Site not responding. Last check: )
		The NAIRU (non-accelerating inflation rate of unemployment) in this paper is based on structural estimates of the price setting behaviour of firms and the wage setting behaviour of trade unions.
		The estimated NAIRU was at a low level up to the end of eighties.
		NAIRU, mittaa sellaista työttömyyden tasoa, jonka alittaminen johtaa inflaation kiihtymiseen.
	www.vatt.fi /julkaisut/julkaisu.asp?id=140&ta=1 (298 words)

	NAIRU - Economic Paradox by John Yu - Infoshop.org (Site not responding. Last check: )
		NAIRU stands for the Non-Accelerating Inflation Rate of Unemployment - it is the belief that there is a some "natural" rate of unemployment, below which increased inflation is unavoidable.
		However NAIRU believers argue that low unemployment means a scarcity of workers - this will force employers to pay more for labor, thus increasing inflation again - forcing them to raise prices in order to keep their companies afloat.
		The NAIRU does not exist (or, rather, is equal to 0%).
	www.infoshop.org /rants/yu_nairu.html (803 words)

	Working paper n°75 Estimation of a time varying NAIRU for France
		We regard the NAIRU as a time-varying parameter and estimate a state space model composed of a random walk process that describes its variations over time and of a Phillips equation.
		Whereas the NAIRU increased by 2.7 points between 1977 and 1988, its steady rise seems to slow down somewhat since the second part of the 1980s, exhibiting two main deceleration periods: first during the second part of the 1980s and second in the mid-1990s.
		In the second part of this paper, we provide strong evidence that the changes in the NAIRU in France during these two episodes may be linked to significant shifts in the demographic composition of the workforce together with a break in the evolution of the fiscal-social wedge.
	www.banque-france.fr /gb/publications/ner/1-75.htm (441 words)

	Sic Semper Tyrannis - Post details: The Bunkness of NAIRU
		Dean Baker has a post on Edmund Phelps and the NAIRU, discussing how it is was basically disproven by the experience of the US in the late 90s.
		NAIRU, for the uninitiated (indoctrinated?) is the theory of the "Non-Accelerating Inflation rate of Unemployment".
		Thus, NAIRU was (in my opinion) little more than a wishful attempt to justify the high unemployment yielded by the Keynesian inflationary monetary regimes intentionally set up in the early 20th century (which, creakingly, remain with us today).
	www.autodogmatic.com /index.php/sst/2006/10/09/the_bunkness_of_nairu (437 words)

	Tutor2u - Unemployment - Non-accelerating Inflation Rate of Unemployment (NAIRU)
		NAIRU stands for the non-accelerating inflation rate of unemployment.
		The NAIRU is the rate of unemployment when the rate of wage inflation is stable
		Economists at Oxford Economic Forecasting estimate that the NAIRU has been falling fairly consistently during the 1990s and stands in 2001 at a level of approximately 4.5% of the labour force.
	www.tutor2u.net /economics/content/topics/unemp/nairu.htm (885 words)

	NAIRU, le Nom de la Ruse. La face cachée du chômage.
		NAIRU (taux de chômage minimum qui permet d'équilibrer l'inflation, d'éviter qu'elle n'augmente, en faisant pression sur les salariés).
		Le NAIRU est au coeur des politiques économiques et monétaires...
		NOUVEAU: Conférence sur le NAIRU écoutable en ligne...
	lenairu.blogspot.com (11256 words)

	The Natural Rate of Unemployment
		Friedman is said to regret the term "natural rate of unemployment," since it implies that a certain amount of unemployment is acceptable.
		The current Fed chairman, Alan Greenspan, is a died-in-the-wool conservative and a self-described "inflation hawk," meaning that he is committed to a high NAIRU.
		Conversely, liberals prefer a low NAIRU because it raises workers' wages.
	www.huppi.com /kangaroo/L-chinairu.htm (0 words)

	What is the NAIRU? - Mises Institute
		Economists used to say that the NAIRU was 6 percent.
		In a recent Brookings Institution study three economists, William Dickens, George Perry and George Akerlof, concluded that inflation stabilizes at an unemployment rate of 4.5 percent.
		The NAIRU is an arbitrary measure, derived from a statistical correlation between changes in the consumer price index and the unemployment rate.
	www.mises.org /story/470 (936 words)

	Options for Stabilization Policy: A New Analysis of Choices Confronting the Fed
		In practice, NAIRU models assume that people form their expectations of future inflation based on an average of past inflation.
		This average is used in statistical analysis as the measure of expected inflation and, in NAIRU models, it is assumed to move current inflation one-for-one.
		Thus, this final NAIRU assumption is approximately correct when inflation is high, but not when inflation is at low to moderate levels.
	www.brookings.edu /comm/policybriefs/pb69.htm (3196 words)

	Highbeam Encyclopedia - Search Results for NAIRU (Site not responding. Last check: )
		History and theory of the NAIRU: a critical review.
		The buffer stock employment model and the NAIRU: the path to full employment.
		NAIRU and other fads: economic theories are all well and good, but they sometimes have to bow to the complexity of real life.
	www.encyclopedia.com /SearchResults.aspx?Q=NAIRU (814 words)

	Options for Stabilization Policy: A New Analysis of Choices Confronting the Fed (Site not responding. Last check: )
		In practice, NAIRU models assume that people form their expectations of future inflation based on an average of past inflation.
		This average is used in statistical analysis as the measure of expected inflation and, in NAIRU models, it is assumed to move current inflation one-for-one.
		Thus, this final NAIRU assumption is approximately correct when inflation is high, but not when inflation is at low to moderate levels.
	www.brook.edu /comm/policybriefs/pb69.htm (3188 words)

	What's Behind the Decline in the NAIRU?
		This paper assesses the apparent decline during the 1990s in the unemployment rate associated with stable inflation³the so-called "NAIRU." The paper argues that supply shocks alone are not sufficient to account for this decline and that changes in labor markets are in part responsible.
		Although a demographic shift toward a more experienced workforce, a growing use of temporary employees, and a skyrocketing prison population probably have contributed to the decline in the NAIRU, they do not adequately explain the timing of an acceleration in that decline during the mid-1990s.
		I propose an alternative explanation based on evidence showing an increase during the 1990s in the synchronization of regional economic conditions.
	escholarship.bc.edu /econ_papers/190 (168 words)

	Bruce Bartlett Opinion Editorial: Unemployment, Inflation And The Minimum Wage
		The idea behind NAIRU is that there are structural factors in the economy that prevent unemployment from ever falling to zero or even close to it.
		The result was a concomitant fall in the NAIRU from more than 7 percent in 1980 to less than 5 percent by the end of the decade, according to Tulip.
		The decline in the NAIRU allowed the Fed to ease monetary policy without fear of re-igniting inflation, contributing to strong growth in the 1980s.
	www.ncpa.org /oped/bartlett/aug2100.html (942 words)

	Revised Oecd Measures Of Structural Unemployment - Organization for Economic Cooperation and Development OECD Economic ...
		The NAIRU is the rate of unemployment consistent with stable inflation...
		The existence of a NAIRU therefore has immediate implications for the conduct of economic policies, in that: macroeconomic stimulus alone cannot permanently reduce unemployment; and any short-term improvements relative to the NAIRU resulting from stimulative policy actions will be reflected in progressively higher rates of inflation.
		In practice, the situation may be somewhat less clear-cut - the NAIRU may, to some extent, be influenced by the path of actual unemployment - but, conceptually, the notion of a NAIRU determined mainly by structural f actors remains important.
	www.findarticles.com /p/articles/mi_m4456/is_2000_Dec/ai_69442463 (836 words)

	The New Economy Homepage
		Apart from the discussion of a decline in the NAIRU, the current controversy revolves around the general validity of the model.
		The authors summarize recent research and present new evidence on questions about the decline of the NAIRU in recent years and its usefulness to anticipate increases in the inflation rate.
		Stiglitz defends the NAIRU as a useful analytic concept and an empirical basis for predicting changes in the inflation rate.
	userpage.fu-berlin.de /~jentzsch/ne_nairu.html (473 words)

	Alan Greenspan and the ECB: Different Policies, Different Results, by Dean Baker, February 22, 2002
		In this article (which was titled "Voodoo Redux"), Krugman compared the economists who disputed the NAIRU theory to the scientists who disputed the evidence of damage to the earth's ozone layer -- most of whom appeared to be on the payroll of industries responsible for the damage.
		The standard NAIRU models predict that the low unemployment of recent years should have increased the rate of inflation by approximately 4 percentage points.
		For example, in France and Italy the estimated NAIRU rises by 0.9 percentage point over this seven year period, in Greece the increase is 1.6 percentage point, and in Sweden 3.5 percentage points.
	cepr.net /publications/federal_reserve_2002_02.htm (3524 words)

	Federal Reserve Bank of Minneapolis - The Region - Gary H. Stern Column-Rethining NAIRU (June 2000) (Site not responding. Last check: )
		Although estimates vary, NAIRU is usually put at somewhere between 5 percent and 6 percent for the U.S. economy.
		Empirical work is rarely definitive in economics, so it is premature to discard the NAIRU concept or the general notion that labor market conditions may be a precursor of inflation.
		And secondly, it is well to recall that there is an impressive body of research indicating that in the long run inflation is a monetary phenomenon, and thus it is the responsibility of Federal Reserve policy to maintain a low-inflation economy.
	minneapolisfed.org /pubs/region/00-06/top9.cfm (547 words)

	Labour Markets The Politics of NAIRU
		The model required to explain the time-series behaviour of the inflation process is based on three factors: Inertia of the inflation rate, demand and supply conditions.
		Since the inflation rate for the GDP deflator was roughly constant from 4/94 to 1/96, and, at the same time, the actual unemployment rate was 5.6%, Gordon concludes that NAIRU must also have been very close to 5.6% during that time period.
		Second, it highlights the differences in the NAIRU series implied by alternative inflation measures, and thereby forces the Fed to clarify which inflation concept it is trying to stabilize.
	www.cepr.org /pubs/bulletin/dps/dp1492.htm (317 words)

	"Fed Ache" by James K. Galbraith
		The NAIRU was invented, mainly by Milton Friedman in 1968, in dissent from the prior doctrine of the Phillips Curve, the idea that full employment would entail only a modest rise in the permanent rate of inflation.
		The NAIRU doctrine taught that even trying to push the unemployment rate down with monetary policy was futile; and, worse, that if unemployment were to fall for a substantial time below the NAIRU threshold, inflation would not only rise but also accelerate.
		Meyer chose to adhere to the NAIRU concept, while conceding ground, bit by bit, on his estimate of where the threshold of hyperinflation might be: a rationale which unfortunately always made him fear the worst.
	www.washingtonmonthly.com /features/2004/0407.galbraith.html (1432 words)

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