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What’s the natural rate of unemployment? Answers from forecasters

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  • Kevin W. Capehart

Abstract

For its panel survey of professional macroeconomic forecasters, the US Federal Reserve asks panelists whether they use the ‘natural rate of unemployment’ (NRU) or ‘non-accelerating inflation rate of unemployment’ (NAIRU) in formulating their forecasts and, also, to estimate the NRU/NAIRU. This paper studies responses and non-responses to those questions in order to interrogate forecasters’ views of the NRU/NAIRU. We find that most panelists in most years say they do not use the NRU/NAIRU, and they do not provide an estimate of it. Among those who do, their NRU/NAIRU estimates differ but usually do not differ significantly from the average of recent unemployment rates. We fail to find much evidence – in either their inflation and unemployment forecasts, NRU/NAIRU estimates, or revisions to those estimates over time – that panelists who use the NRU/NAIRU treat it as an unemployment rate below which inflation rises and above which inflation falls. Finally, we find that the NRU/NAIRU has no informational value for panelists who say they use it; they are no better at accurately forecasting inflation or unemployment.

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  • Kevin W. Capehart, 2019. "What’s the natural rate of unemployment? Answers from forecasters," International Review of Applied Economics, Taylor & Francis Journals, vol. 33(5), pages 712-732, September.
    • Handle: RePEc:taf:irapec:v:33:y:2019:i:5:p:712-732
    DOI: 10.1080/02692171.2019.1566446
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    Cited by:

    1. Carlos David Cardona-Arenas & Lya Paola Sierra-Suárez, 2020. "Impacto de la política monetaria en el equilibrio del mercado de trabajo: países de la Alianza del Pacífico," Revista Finanzas y Politica Economica, Universidad Católica de Colombia, vol. 12(2), pages 491-521, August.

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