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The NAIRU in Theory and Practice

  • Laurence Ball
  • N. Gregory Mankiw

This paper discusses the NAIRU--the non-accelerating inflation rate of unemployment. It first considers the role of the NAIRU concept in business cycle theory, arguing that this concept is implicit in any model in which monetary policy influences both inflation and unemployment. The exact value of the NAIRU is hard to measure, however, in part because it changes over time. The paper then discusses why the NAIRU changes and, in particular, why it fell in the United States during the 1990s. The most promising hypothesis is that the decline in the NAIRU is attributable to the acceleration in productivity growth.

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/089533002320951000
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Article provided by American Economic Association in its journal Journal of Economic Perspectives.

Volume (Year): 16 (2002)
Issue (Month): 4 (Fall)
Pages: 115-136

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Handle: RePEc:aea:jecper:v:16:y:2002:i:4:p:115-136
Note: DOI: 10.1257/089533002320951000
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  4. Laurence Ball & Robert Moffitt, 2001. "Productivity Growth and the Phillips Curve," Economics Working Paper Archive 450, The Johns Hopkins University,Department of Economics.
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  20. Edmund S. Phelps, 1968. "Money-Wage Dynamics and Labor-Market Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 76, pages 678.
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