The Natural Rate of Unemployment and the NAIRU

Backhouse, Roger E.; Forder, James and Laskaridis, Christina (2023). The Natural Rate of Unemployment and the NAIRU. European Economic Review, article no. 104563.

DOI: https://doi.org/10.1016/j.euroecorev.2023.104563

Abstract

The usage of the terms ‘natural rate of unemployment’ and NAIRU (Non-Accelerating Inflation Rate of Unemployment) in English-language publications are considered and compared. It is argued that contrary to what has sometimes been suggested, there is no consistent difference in the economic theory underlying the two ideas. However, there is, to a significant extent, and particularly in the 1980s, a difference in the way the two terms were used: choice of language typically depended on the questions being addressed. That difference, in turn, arose substantially from the different macroeconomic experiences of the US and Europe. In the 1980s, faced with persistently high unemployment, European economists developed structural econometric models seeking to understand the determination of the NAIRU. In later years, as economic circumstances changed, usage became more homogeneous and choices about it seem to have been much more a matter of personal taste or habit.

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