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Accounting for the Recent Decline in the NAIRU

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  • Robert G. Murphy

    (Boston College)

Abstract

This paper confirms that the unemployment rate associated with stable inflation, the so-called "NAIRU," probably has declined in recent years, after having risen sharply during the late 1970s and early 1980s. Although a demographic shift toward a less experienced workforce and an unexpected slowdown in trend productivity growth are able to explain the earlier rise in the NAIRU, a reversal of these effects does not adequately explain the timing of the apparent decline in the NAIRU during the 1990s. I propose that an additional element needs to be incorporated into the assessment. I argue that the degree of integration of regional labor markets across the United States has accelerated over the recent past, leading to a greater degree of synchronization in the pattern of regional labor market conditions and regional business-cycle conditions. I provide evidence of this greater synchronization, and suggest that it may have led to a drift downward in the NAIRU.

Suggested Citation

  • Robert G. Murphy, 1998. "Accounting for the Recent Decline in the NAIRU," Boston College Working Papers in Economics 414, Boston College Department of Economics.
    • Handle: RePEc:boc:bocoec:414
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    References listed on IDEAS

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    1. David Card & Dean Hyslop, 1997. "Does Inflation "Grease the Wheels of the Labor Market"?," NBER Chapters, in: Reducing Inflation: Motivation and Strategy, pages 71-122, National Bureau of Economic Research, Inc.
    2. Robert J. Gordon, 1997. "The Time-Varying NAIRU and Its Implications for Economic Policy," Journal of Economic Perspectives, American Economic Association, vol. 11(1), pages 11-32, Winter.
    3. Olivier Blanchard & Lawrence F. Katz, 1997. "What We Know and Do Not Know about the Natural Rate of Unemployment," Journal of Economic Perspectives, American Economic Association, vol. 11(1), pages 51-72, Winter.
    4. Douglas Staiger & James H. Stock & Mark W. Watson, 1997. "The NAIRU, Unemployment and Monetary Policy," Journal of Economic Perspectives, American Economic Association, vol. 11(1), pages 33-49, Winter.
    5. Archibald, G C, 1969. "The Phillips Curve and the Distribution of Unemployment," American Economic Review, American Economic Association, vol. 59(2), pages 124-134, May.
    6. Joseph Stiglitz, 1997. "Reflections on the Natural Rate Hypothesis," Journal of Economic Perspectives, American Economic Association, vol. 11(1), pages 3-10, Winter.
    7. James L. Medoff & Katharine G. Abraham, 1981. "Unemployment, Unsatisfied Demand for Labor, and Compensation Growth in the United States, 1956-1980," NBER Working Papers 0781, National Bureau of Economic Research, Inc.
    8. Robert J. Gordon, 1981. "Inflation, Flexible Exchange Rates, and the Natural Rate of Unemployment," NBER Working Papers 0708, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Murphy, Robert G., 2014. "Explaining inflation in the aftermath of the Great Recession," Journal of Macroeconomics, Elsevier, vol. 40(C), pages 228-244.
    2. Robert G. Murphy, 2016. "Why Has Inflation Been So Unresponsive to Economic Activity in Recent Years?," Boston College Working Papers in Economics 920, Boston College Department of Economics.
    3. Afful, Efua Amoonua, 2014. "Does Employment Protection Legislation Induce Structural Unemployment? Evidence from 15 OECD Countries," MPRA Paper 56875, University Library of Munich, Germany.
    4. Robert Murphy, 2016. "Explaining the Recent Behavior of Inflation in the United States," EcoMod2016 9550, EcoMod.

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    More about this item

    Keywords

    Nairu; Phillips Curve; Inflation; Natural Rate;
    All these keywords.

    JEL classification:

    • E0 - Macroeconomics and Monetary Economics - - General
    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook

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