Reflections on the Natural Rate Hypothesis
AbstractDoes 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.
CitationStiglitz, Joseph. 1997. "Reflections on the Natural Rate Hypothesis." Journal of Economic Perspectives, 11 (1): 3-10. DOI: 10.1257/jep.11.1.3
- E24 Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital
- E31 Price Level; Inflation; Deflation