Re: [OPE] The rising NAIRU

On Wed, 8 Jul 2009, Paul Bullock wrote:

> the NAIRU allows the user to treat the 'minimal' unemployment
> rate to which you refer as a 'natural' consequence of the
> system.

Allows, but does not mandate.

Kevin Hoover has a clear piece on the Phillips Curve at
http://www.econlib.org/library/Enc/PhillipsCurve.html
in which he says, inter alia,

"Most economists now accept a central tenet of both Friedman's and
Phelps's analyses: there is some rate of unemployment that, if
maintained, would be compatible with a stable rate of inflation.
Many, however, call this the 'nonaccelerating inflation rate of
unemployment' (NAIRU) because, unlike the term 'natural rate,'
NAIRU does not suggest that an unemployment rate is socially
optimal, unchanging, or impervious to policy."

Also,

"Some ... economists hold that, at best, there is only a weak
tendency for an economy to return to NAIRU. They argue that there
is no natural rate of unemployment to which the actual rate tends
to return. Instead, when actual unemployment rises and remains
high for some time, NAIRU also rises. The dependence of NAIRU on
actual unemployment is known as the hysteresis hypothesis."

Here we have a definitely "unnatural" NAIRU, which is what I was
talking about.

Allin Cottrell
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Received on Thu Jul 9 16:21:55 2009