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Time to Ditch the NAIRU

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Author Info
Galbraith, James K
Abstract

The concept of a natural rate of unemployment, or nonaccelerating inflation rate of unemployment (NAIRU), remains controversial after twenty-five years. This essay presents a brief for no-confidence, in four parts. First, the theoretical case for the natural rate is not compelling. Second, the evidence for a vertical Phillips curve and the associated accelerationist hypothesis that lowering unemployment past the NAIRU leads to unacceptable acceleration of inflation is weak. Third, economists have failed to reach professional consensus on estimating the NAIRU. Fourth, adherence to the concept as a guide to policy has major social costs but negligible benefits. Copyright 1997 by American Economic Association.

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Article provided by American Economic Association in its journal Journal of Economic Perspectives.

Volume (Year): 11 (1997)
Issue (Month): 1 (Winter)
Pages: 93-108
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Handle: RePEc:aea:jecper:v:11:y:1997:i:1:p:93-108

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. George L. Perry, 1970. "Changing Labor Markets and Inflation," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 1(1970-3), pages 411-448. [Downloadable!]
  2. Gordon, David M, 1988. "The Un-natural Rate of Unemployment: An Econometric Critique of the NAIRU Hypothesis," American Economic Review, American Economic Association, vol. 78(2), pages 117-23, May. [Downloadable!] (restricted)
  3. Edmund S. Phelps, 1968. "Money-Wage Dynamics and Labor-Market Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 76, pages 678. [Downloadable!] (restricted)
  4. Robert E. Hall, 1970. "Why Is the Unemployment Rate So High at Full Employment?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 1(1970-3), pages 369-410. [Downloadable!]
  5. Adams, Charles & Coe, David T., 1989. "A Systems Approach to Estimating the Natural Rate of Unemployment and Potential Output for the United States," MPRA Paper 8622, University Library of Munich, Germany. [Downloadable!]
  6. George A. Akerlof & William R. Dickens & George L. Perry, 1996. "The Macroeconomics of Low Inflation," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 27(1996-1), pages 1-76. [Downloadable!]
  7. Lucas, Robert E, Jr, 1981. "Tobin and Monetarism: A Review Article," Journal of Economic Literature, American Economic Association, vol. 19(2), pages 558-67, June. [Downloadable!] (restricted)
  8. Chinhui Juhn & Kevin M. Murphy & Robert H. Topel, 1991. "Why Has the Natural Rate of Unemployment Increased over Time?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 22(1991-2), pages 75-142. [Downloadable!]
  9. Ray C. Fair, 1996. "Testing the Standard View of the Long-Run Unemployment-Inflation Relationship," Cowles Foundation Discussion Papers 1121, Cowles Foundation, Yale University. [Downloadable!]
  10. Hall, Robert E., 1979. "A theory of the natural unemployment rate and the duration of employment," Journal of Monetary Economics, Elsevier, vol. 5(2), pages 153-169, April. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Matias Vernengo, 2006. "The Political Economy of Monetary Institutions in Brazil: The Limits of the Inflation Targeting Strategy, 1999-2005," Working Paper Series, Department of Economics, University of Utah 2006_05, University of Utah, Department of Economics.
    Other versions:
  2. Sheila Dolmas & Mark A. Wynne & Jahyeong Koo, 1997. "Rolling recessions," The Southwest Economy, Federal Reserve Bank of Dallas, issue Sep, pages 1-4. [Downloadable!]
  3. Alfonso Palacio Vera, 2002. "The "Modern" View of Macroeconomics: Somo Critical Reflections," Documentos de trabajo de la Facultad de Ciencias Económicas y Empresariales 02-17, Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales. [Downloadable!]
  4. John F. Henry, 1999. "Property Rights, Markets and Economic Theory: Keynes versus Neoclassicism - again," Review of Political Economy, Taylor and Francis Journals, vol. 11(2), pages 151-170, April. [Downloadable!] (restricted)
  5. Stephen D. Prowse, 1997. "Corporate financing and governance: an international perspective," The Southwest Economy, Federal Reserve Bank of Dallas, issue Sep, pages 9-10. [Downloadable!]
  6. Barry Bluestone & Stephen Rose, . "The Unmeasured Labor Force, The Growth in Work Hours," Economics Public Policy Brief Archive 39, Levy Economics Institute, The. [Downloadable!]
  7. Salemi, Michael K, 1999. "Estimating the Natural Rate of Unemployment and Testing the Natural Rate Hypothesis," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 14(1), pages 1-25, Jan.-Feb.. [Downloadable!]
  8. Jürgen Kromphardt & Camille Logeay, 2007. "Changes in the Balance of Power Between the Wage and Price Setters and the Central Bank: Consequences for the Phillips Curve and the NAIRU," Kiel Working Papers 1354, Kiel Institute for the World Economy. [Downloadable!]
  9. Lori L. Taylor, 1997. "Regional Update," The Southwest Economy, Federal Reserve Bank of Dallas, issue Sep, pages 11. [Downloadable!]
  10. Rod Cross & Julia Darby & Jonathan Ireland, 1997. "Uncertainties Surrounding Natural Rate Estimates in the G7," Working Papers 9712, Department of Economics, University of Glasgow. [Downloadable!]
  11. James K. Galbraith, . "Dangerous Metaphor: The Fiction of the Labor Market, Unemployment, Inflation, and the Job Structure," Economics Public Policy Brief Archive 36, Levy Economics Institute, The. [Downloadable!]
  12. Evan F. Koenig, 1997. "Is the Fed slave to a defunct economist," The Southwest Economy, Federal Reserve Bank of Dallas, issue Sep, pages 5-8. [Downloadable!]
  13. Karunaratne, Neil Dias, 2006. "The New Economy and the Dollar Puzzle," Economic Analysis and Policy (EAP), Queensland University of Technology (QUT), School of Economics and Finance, vol. 36(1-2), pages 25-43, March/Sep. [Downloadable!]
  14. Peter Skott, . "Wage Formation and the (Non-)Existence of the NAIRU," Economics Working Papers 1998-16, School of Economics and Management, University of Aarhus. [Downloadable!]
  15. Rudy Fichtenbaum, 2003. "Is there a natural level of capacity utilization?," Forum for Social Economics, Springer, vol. 33(1), pages 45-62, September. [Downloadable!] (restricted)
  16. Pui Chi Ip, 2004. "Inflation and Growth Targeting," Research Papers 0401, Macquarie University, Department of Economics. [Downloadable!]
  17. Antonella Palumbo, . "I Metodi Di Stima Del Pil Potenziale Tra Fondamenti Di Teoria Economica E Contenuto Empirico," Departmental Working Papers of Economics - University 'Roma Tre' 0092, Department of Economics - University Roma Tre. [Downloadable!]
  18. Meyler, Aidan, 1999. "The non-accelerating inflation rate of unemployment (NAIRU) in a small open economy: The irish context," MPRA Paper 11363, University Library of Munich, Germany. [Downloadable!]
    Other versions:
  19. Douglas Staiger & James H. Stock & Mark W. Watson, 2001. "Prices, Wages and the U.S. NAIRU in the 1990s," NBER Working Papers 8320, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  20. Thierry Warin, 2006. "From Full Employment to the Natural Rate of Unemployment: A Survey," Middlebury College Working Paper Series 0601, Middlebury College, Department of Economics. [Downloadable!]
  21. Eckhard Hein, 2005. "Die NAIRU – eine post-keynesianische Interpretation," Macroeconomics 0501009, EconWPA. [Downloadable!]
    Other versions:
  22. Kurt W. Rothschild, 1999. "Maximising, Satisficing, Weights and the Evaluation of Macroeconomic Comparisons," International Review of Applied Economics, Taylor and Francis Journals, vol. 13(2), pages 207-217, May. [Downloadable!] (restricted)
  23. Alfred Stiassny, 1998. "Wage Setting and Hysteresis in Unemployment," Empirica, Springer, vol. 25(1), pages 79-107, January. [Downloadable!] (restricted)
  24. Tim Fry & Elizabeth Webster, 2003. "Conflict Inflation: Estimating the Contributions to Wage Inflation in Australia During the 1990s," Melbourne Institute Working Paper Series wp2003n06, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne. [Downloadable!]
    Other versions:
  25. Robert M. Coen et al., 1999. "The NAIRU and Wages in Local Labor Markets," American Economic Review, American Economic Association, vol. 89(2), pages 52-57, May. [Downloadable!] (restricted)
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