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Reflections on the Natural Rate Hypothesis

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  • Joseph Stiglitz

Abstract

Does the deviation of unemployment from some natural rate provide a robust and useful way to predict changes in the inflation rate? Can economists explain why the NAIRU changes over time? Is the NAIRU a useful way to frame policy discussions despite the uncertainty surrounding its precise level? The NAIRU hypothesis passes all three tests. Recent research shows that the NAIRU has fallen dramatically in the last decade. This paper refutes the need for a highly restrictive bias in macroeconomic policy because small deviations from the NAIRU will lead to only small, possibly easily correctable, changes in the inflation rate.

Suggested Citation

  • Joseph Stiglitz, 1997. "Reflections on the Natural Rate Hypothesis," Journal of Economic Perspectives, American Economic Association, vol. 11(1), pages 3-10, Winter.
  • Handle: RePEc:aea:jecper:v:11:y:1997:i:1:p:3-10
    Note: DOI: 10.1257/jep.11.1.3
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    File URL: http://www.aeaweb.org/articles.php?doi=10.1257/jep.11.1.3
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    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
    • 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
    • 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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