The NAIRU - Concept: A Few Remarks
This note gives a brief survey of main theoretical and empirical issues with respect to the NAIRU concept. According to modern labour market literature NAIRU is defined as the rate of unemployment at which inflation stabilizes in the absence of any wage-price surprises. Conventional thinking about the equilibrium unemployment rate assumes that in the long run NAIRU is determined solely by supply side factors of the labour market. We show that quite complex adjustment dynamics may arise even in simple log-linear wage-price models. Furthermore we provide a survey on a number of "hysteresis-mechanisms" which could lead to permanent shifts of equilibrium unemployment over time, implying that an unique long run NAIRU may not even exist. In addition to theoretical issues we refer to two serious problems which might arise with empirical applications of the NAIRU concept. First various empirical studies suggest that results highly depend on model specifications. Second a considerable amount of statistical imprecision is inherent in the results obtained from empirical estimates. For these reasons, we argue, that policy conclusions drawn from the NAIRU concept must be judged with utmost care, particularly since in many countries a number of labour market measures as well as monetary policy are based on this concept.
|Date of creation:||Sep 1996|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: ++43 - (0)1 - 599 91 - 0
Fax: ++43 - (0)1 - 599 91 - 555
Web page: http://www.ihs.ac.at
More information through EDIRC
|Order Information:|| Postal: Institute for Advanced Studies - Library, Stumpergasse 56, A-1060 Vienna, Austria|
References listed on IDEAS
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.:
- Setterfield, M. A. & Gordon, D. V. & Osberg, L., 1992.
"Searching for a will o' the wisp : An empirical study of the NAIRU in Canada,"
European Economic Review,
Elsevier, vol. 36(1), pages 119-136, January.
- Setterfield, M.A. & Gordon, D.V. & Osberg, L., 1990. "Searching For A Will O'The Wisp: An Empirical Study Of The Nairu In Canada," Department of Economics at Dalhousie University working papers archive 90-04, Dalhousie, Department of Economics.
- Douglas O. Staiger & James H. Stock & Mark W. Watson, 1997.
"How Precise Are Estimates of the Natural Rate of Unemployment?,"
in: Reducing Inflation: Motivation and Strategy, pages 195-246
National Bureau of Economic Research, Inc.
- Douglas Staiger & James H. Stock & Mark W. Watson, 1996. "How Precise are Estimates of the Natural Rate of Unemployment?," NBER Working Papers 5477, National Bureau of Economic Research, Inc.
- Bean, Charles R, 1994.
"European Unemployment: A Survey,"
Journal of Economic Literature,
American Economic Association, vol. 32(2), pages 573-619, June.
- Pagano, Marco, 1990.
"Imperfect Competition, Underemployment Equilibria and Fiscal Policy,"
Royal Economic Society, vol. 100(401), pages 440-63, June.
- Pagano, Marco, 1989. "Imperfect Competition, Underemployment Equilibria and Fiscal Policy," CEPR Discussion Papers 280, C.E.P.R. Discussion Papers.
- Lindbeck, Assar & Snower, Dennis J, 1994.
"How Are Product Demand Changes Transmitted to the Labour Market?,"
Royal Economic Society, vol. 104(423), pages 386-98, March.
- Lindbeck, Assar & Snower, Dennis J., 1993. "How are Product Demand Changes Transmitted to the Labour Market?," CEPR Discussion Papers 844, C.E.P.R. Discussion Papers.
- Layard, Richard & Nickell, Stephen & Jackman, Richard, 2005.
"Unemployment: Macroeconomic Performance and the Labour Market,"
Oxford University Press, number 9780199279173, March.
- Layard, Richard & Nickell, Stephen & Jackman, Richard, 1991. "Unemployment: Macroeconomic Performance and the Labour Market," OUP Catalogue, Oxford University Press, number 9780198284345, March.
- Snower, Dennis J, 1983. "Imperfect Competition, Underemployment and Crowding-Out," Oxford Economic Papers, Oxford University Press, vol. 35(0), pages 245-70, Supplemen.
When requesting a correction, please mention this item's handle: RePEc:ihs:ihsesp:36. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Doris Szoncsitz)
If references are entirely missing, you can add them using this form.