Supply Constraints on Employment and Output: NAIRU Versus Natural Rate
NAIRU and NATURAL RATE are not synonymous. NAIRU is a macro outcome of an economy with many labor markets in diverse states of excess demand and excess supply. NAIRU represents an overall balance between the inflation-increasing pressures from excess-demand markets and the inflation-decreasing pressures from excess-supply markets. The natural rate, as described by Friedman, is a feature of Walrasian market-clearing general equilibrium. While the NAIRU fits into a Keynesian model, the natural rate is an aspect of a New Classical model. The determinants of the two are theoretically different, and so are their implications for policy. The NAIRU varies from time to time as the relationships between unemployment, vacancies, and wage changes vary, and as the dispersion of excess demands and supplies across markets changes. In this decade, these developments appear to be reducing the NAIRU, in contrast to the unfavorable circumstances of the 1970s.
|Date of creation:||Apr 1997|
|Contact details of provider:|| Postal: Yale University, Box 208281, New Haven, CT 06520-8281 USA|
Phone: (203) 432-3702
Fax: (203) 432-6167
Web page: http://cowles.yale.edu/
More information through EDIRC
|Order Information:|| Postal: Cowles Foundation, Yale University, Box 208281, New Haven, CT 06520-8281 USA|
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- George A. Akerlof & William R. Dickens & George L. Perry, 1996. "The Macroeconomics of Low Inflation," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 27(1), pages 1-76.
- Tobin, James, 1972. "Inflation and Unemployment," American Economic Review, American Economic Association, vol. 62(1), pages 1-18, March.
- Martin Neil Baily & James Tobin, 1977. "Macroeconomic Effects of Selective Public Employment and Wage Subsidies," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 8(2), pages 511-544.