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In
the 1990s, economists have witnessed a reduction in the unemployment rate
without an accelerating inflation rate. This has sparked a debate about the Non-accelerating
Inflation Rate of Unemployment (NAIRU). Apart from the discussion of a decline
in the NAIRU, the current controversy revolves around the general validity of
the model.
Laurence
H. Meyer, Eric T. Swanson, and Volker W. Wieland, NAIRU, Uncertainty and
Non-Linear Policy Rules, Federal
Reserve Board Finance and Economics Discussion Series, January 2001 www.federalreserve.gov/pubs/feds/2001/200101/200101pap.pdf
The
authors offer a theoretical justification for a nonlinear policy rule which
may be necessary in response to heightened uncertainty about the NAIRU.
Furthermore, they provide some empirical evidence on the relative
performance of linear and nonlinear rules when there is heightened uncertainty
about the NAIRU.
Staiger,
Douglas et al, Prices, Wages and the U.S. NAIRU in the 1990s, NBER Working
Paper No. W8320, June 2001 http://papers.nber.org/papers/W8320
The
authors examine various explanations of the low rate of price inflation,
strong real wage growth, and low rate of unemployment in the U.S. economy
during the late 1990s. Moreover, they suggest that the different explanations
of movements of wages, prices and unemployment over the 1990s must focus on
understanding the univariate trends in the unemployment rate and in
productivity growth.
Staiger,
Douglas/James Stock/Mark Watson: "The NAIRU, Unemployment and Monetary
Policy", Journal of Economic Perspectives, Vol.
11, No. 1 (Winter 1997), S. 33-49 (not available online)
This is my favourite. The authors summarize recent
research and present new evidence on questions about the decline of the NAIRU
in recent years and its usefulness to anticipate increases in the inflation
rate. Attempts to estimate the NAIRU are discussed as well. However, the
authors conclude that other leading indicators of inflation are more useful than
the imprecise concept of NAIRU.
Galbraith,
James K.: “The Surrender of Economic Policy”, in The American Prospect, Nr.
25 (March – April 1996), www.prospect.org/archives/25/25galb.html
Galbraith,
James K.: “Can't We Go Faster (Test the Limit)”, in The American Prospect, Nr. 34 (Sept. – Oct.
1997), www.prospect.org/archives/34/34galbfs.html
In
both articles, Galbraith dismisses the concept of the NAIRU. The author characterizes rising
inflation as nearly unpredictable because of unforeseeable external shocks.
Stiglitz,
Joseph: "Some Reflections on the Natural Rate Hypothesis", Journal
of Economic Perspectives, Vol. 11, No. 1 (Winter 1997), S. 33-49 (not
available online)
Stiglitz defends the NAIRU as a
useful analytic concept and an empirical basis for predicting changes in the
inflation rate. Moreover, he supports the concept as useful general guide for
assessing macroeconomic policy and argues that it is very well defined.
Roubini, Nouriel: "The
NAIRU Debate: Can the US Economy Grow Above 2.5 % and Unemployment Fall Below
5 % Without Causing an Increase in Inflation?", 1998, http://equity.stern.nyu.edu/~nroubini/NAIRU.HTM
Roubini offers a (very) short introduction to the NAIRU concept and the
Phillips Curve. The author
is also reviewing the NAIRU debate itself and refers to the views of economists like
Greenspan, Krugman or Tobin.
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