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When all are NAIRU: hysteresis and behavioural inertia

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  • T. D. Stanley

Abstract

Smyh and Easaw (2001) use a fully flexible ratchet model to estimate the US NAIRU. However, such flexible notions of NAIRU cleanse the natural rate hypothesis of all policy and theoretical relevance. Six successive years of unemployment rates below these estimated NAIRUs produce declining inflation, not the accelerating inflation promised by the natural rate hypothesis. An alternative model of inflation dynamics, the behavioural inertia hypothesis, is offered and shown to fit the US inflation-unemployment relation quite well. This behavioural inertia model is consistent with the recent US experience of low and falling unemployment accompanied by low and falling rates of inflation.

Suggested Citation

  • T. D. Stanley, 2002. "When all are NAIRU: hysteresis and behavioural inertia," Applied Economics Letters, Taylor & Francis Journals, vol. 9(11), pages 753-757.
    • Handle: RePEc:taf:apeclt:v:9:y:2002:i:11:p:753-757
    DOI: 10.1080/13504850210128785
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    1. Cross,Rod Preface by-Name:Blanchard,Olivier (ed.), 1995. "The Natural Rate of Unemployment," Cambridge Books, Cambridge University Press, number 9780521483308, January.
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    1. T.D. Stanley, 2013. "Does economics add up? An introduction to meta-regression analysis," European Journal of Economics and Economic Policies: Intervention, Edward Elgar Publishing, vol. 10(2), pages 207-220.

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