The NAIRU in Theory and Practice

2002/11/01 by Laurence Ball, N. Gregory Mankiw · 380 citations
Economics, Econometrics and Finance · #Monetary Policy and Economic Impact #Economic Theory and Policy #Economic Growth and Productivity #NAIRU #Economics #Unemployment #Inflation (cosmology) #Keynesian economics #Phillips curve #Macroeconomics #Productivity #Monetary policy #Business cycle #Econometrics #Monetary economics #Theoretical physics

paper · doi:10.1257/089533002320951000

published in The Journal of Economic Perspectives 16(4), 115-136 (American Economic Association)

openalex publication_date 2002/11/01 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/16

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.

Citations

• Long-Term Contracts, Rational Expectations, and the Optimal Money Supply Rule
• The High-Pressure U.S. Labor Market of the 1990s
• A Near-Rational Model of the Business Cycle, with Wage and Price Inertia
• Postwar U.S. Business Cycles: An Empirical Investigation
• Aggregate Dynamics and Staggered Contracts
• Small Menu Costs and Large Business Cycles: A Macroeconomic Model of Monopoly
• Sticky Information versus Sticky Prices: A Proposal to Replace the New Keynesian Phillips Curve

Cited by

• NAIRU [wikipedia]