Journal of Economic Perspectives: Vol. 11 No. 1 (Winter 1997)


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Reflections on the Natural Rate Hypothesis

Article Citation

Stiglitz, Joseph. 1997. "Reflections on the Natural Rate Hypothesis." Journal of Economic Perspectives, 11(1): 3-10.

DOI: 10.1257/jep.11.1.3


Does the deviation of unemployment from some natural rate provide a robust and useful way to predict changes in the inflation rate? Can economists explain why the NAIRU changes over time? Is the NAIRU a useful way to frame policy discussions despite the uncertainty surrounding its precise level? The NAIRU hypothesis passes all three tests. Recent research shows that the NAIRU has fallen dramatically in the last decade. This paper refutes the need for a highly restrictive bias in macroeconomic policy because small deviations from the NAIRU will lead to only small, possibly easily correctable, changes in the inflation rate.

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Stiglitz, Joseph (US Council of Econ Advisors)

JEL Classifications

E24: Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital
E31: Price Level; Inflation; Deflation


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