The NAIRU in Theory and Practice

45 Pages Posted: 17 May 2002 Last revised: 7 Dec 2022

See all articles by Laurence Ball

Laurence Ball

Johns Hopkins University - Department of Economics; National Bureau of Economic Research (NBER); International Monetary Fund (IMF)

N. Gregory Mankiw

Harvard University - Department of Economics; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: May 2002

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.

Suggested Citation

Ball, Laurence M. and Mankiw, N. Gregory, The NAIRU in Theory and Practice (May 2002). NBER Working Paper No. w8940, Available at SSRN: https://ssrn.com/abstract=312653

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