The Time-Varying NAIRU and its Implications for Economic Policy / Robert J. Gordon.

By:

Gordon, Robert J

Contributor(s):

National Bureau of Economic Research

Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w5735.Publication details: Cambridge, Mass. National Bureau of Economic Research 1996.Description: 1 online resource: illustrations (black and white)Subject(s):

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Abstract: This paper estimates the NAIRU (standing for the Non-Accelerating Inflation Rate of Unemployment) as a parameter that varies over time. The NAIRU is the unemployment rate that is consistent with a constant rate of inflation. Its value is determined in an econometric model in which the inflation rate depends on its own past values ( inertia ), demand shocks proxied by the difference between the actual unemployment rate and the estimated NAIRU, and a set of supply shock variables. The estimated NAIRU for the U.S. economy differs somewhat for alternative measures of the inflation rate. The NAIRU estimated for the GDP deflator varies over the past forty years within the narrow range of 5.7 to 6.4 percent; its estimated value for the most recent quarter (1996:Q1) is 5.7 percent. In that quarter a lower NAIRU of 5.3 percent is obtained for the chain-weighted PCE deflator. Recent research claiming that there is a three-percentage-point range of uncertainty about the NAIRU is rejected as inconsistent with the behavior of the American economy in the late 1980s and early 1990s.

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Item type	Home library	Collection	Call number	Status	Date due	Barcode	Item holds
Working Paper	Biblioteca Digital	Colección NBER	nber w5735 (Browse shelf(Opens below))	Not For Loan

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August 1996.

This paper estimates the NAIRU (standing for the Non-Accelerating Inflation Rate of Unemployment) as a parameter that varies over time. The NAIRU is the unemployment rate that is consistent with a constant rate of inflation. Its value is determined in an econometric model in which the inflation rate depends on its own past values ( inertia ), demand shocks proxied by the difference between the actual unemployment rate and the estimated NAIRU, and a set of supply shock variables. The estimated NAIRU for the U.S. economy differs somewhat for alternative measures of the inflation rate. The NAIRU estimated for the GDP deflator varies over the past forty years within the narrow range of 5.7 to 6.4 percent; its estimated value for the most recent quarter (1996:Q1) is 5.7 percent. In that quarter a lower NAIRU of 5.3 percent is obtained for the chain-weighted PCE deflator. Recent research claiming that there is a three-percentage-point range of uncertainty about the NAIRU is rejected as inconsistent with the behavior of the American economy in the late 1980s and early 1990s.