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The NAIRU, Unemployment and Monetary Policy

Author

Listed:
  • Douglas Staiger
  • James H. Stock
  • Mark W. Watson

Abstract

This paper examines the precision of conventional estimates of the NAIRU and the role of the NAIRU and unemployment in forecasting inflation. The authors find that, although there is a clear empirical Phillips relation, the NAIRU is imprecisely estimated, forecasts of inflation are insensitive to the NAIRU, and there are other leading indicators of inflation that are at least as good as unemployment. This suggests deemphasizing the NAIRU in public discourse about monetary policy and instead drawing on a richer variety of leading indicators of inflation.

Suggested Citation

  • 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.
  • Handle: RePEc:aea:jecper:v:11:y:1997:i:1:p:33-49
    Note: DOI: 10.1257/jep.11.1.33
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    File URL: http://www.aeaweb.org/articles.php?doi=10.1257/jep.11.1.33
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    References listed on IDEAS

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    6. Roy Cromb, 1993. "A Survey of Recent Econometric Work on the NAIRU," Journal of Economic Studies, Emerald Group Publishing, vol. 20(1/2), pages 27-51, January.
    7. Christina D. Romer & David H. Romer, 1997. "Reducing Inflation: Motivation and Strategy," NBER Books, National Bureau of Economic Research, Inc, number rome97-1, April.
    8. Jeffrey C. Fuhrer, 1995. "The Phillips curve is alive and well," New England Economic Review, Federal Reserve Bank of Boston, issue Mar, pages 41-56.
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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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