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  5. The NAIRU in Theory and Practice

Journal of Economic Perspectives

ISSN 0895-3309 (Print) | ISSN 1944-7965 (Online)

The NAIRU in Theory and Practice

  • Laurence Ball
  • N. Gregory Mankiw
Journal of Economic Perspectives
vol. 16, no. 4, Fall 2002
(pp. 115–136)
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Abstract

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.

Citation

Ball, Laurence, and N. Gregory Mankiw. 2002. "The NAIRU in Theory and Practice ." Journal of Economic Perspectives, 16 (4): 115–136. DOI: 10.1257/089533002320951000

JEL Classification

  • E24 Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital
  • E31 Price Level; Inflation; Deflation
  • E32 Business Fluctuations; Cycles
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