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


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The NAIRU, Unemployment and Monetary Policy

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Staiger, Douglas, James H. Stock, and Mark W. Watson. 1997. "The NAIRU, Unemployment and Monetary Policy." Journal of Economic Perspectives, 11(1): 33-49.

DOI: 10.1257/jep.11.1.33


This paper examines the precision of conventional estimates of the NAIRU and the role of the NAIRU and unemployment in forecasting inflation. The authors find that, although there is a clear empirical Phillips relation, the NAIRU is imprecisely estimated, forecasts of inflation are insensitive to the NAIRU, and there are other leading indicators of inflation that are at least as good as unemployment. This suggests deemphasizing the NAIRU in public discourse about monetary policy and instead drawing on a richer variety of leading indicators of inflation.

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Staiger, Douglas (Kennedy School of Government, Harvard U)
Stock, James H. (Kennedy School of Government, Harvard U)
Watson, Mark W. (Wilson School, Princeton U)

JEL Classifications

E24: Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital
E31: Price Level; Inflation; Deflation
E52: Monetary Policy


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