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The Time-Varying NAIRU and Its Implications for Economic Policy

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  • Robert J. Gordon

Abstract

The NAIRU, the unemployment rate consistent with a constant rate of inflation, is estimated, in this paper, as a parameter allowed to vary over time. Value is determined in an econometric model where the inflation rate depends on its past values, demand and supply shocks. The NAIRU estimated for the GDP deflator varies over the past forty years within 5.4 to 6.5 percent; its estimated value for the most recent quarter (1996:Q2) is 5.6 percent. The NAIRU has declined in recent years in response to global competition, immigration, other factors weakening labor's bargaining position, and the rapidly declining prices of computers and other electronics.

Suggested Citation

  • 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.
  • Handle: RePEc:aea:jecper:v:11:y:1997:i:1:p:11-32
    Note: DOI: 10.1257/jep.11.1.11
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    References listed on IDEAS

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    1. Gordon, Robert J, 1977. "The Theory of Domestic Inflation," American Economic Review, American Economic Association, vol. 67(1), pages 128-134, February.
    2. Robert E. Lucas & Thomas J. Sargent, 1979. "After Keynesian macroeconomics," Quarterly Review, Federal Reserve Bank of Minneapolis, vol. 3(Spr).
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    More about this item

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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