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The NAIRU-Concept: A Few Remarks

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  • Karl Pichelmann
  • Andreas Ulrich Schuh

Abstract

This note gives a brief survey of main theoretical and empirical issues with respect to the NAIRU concept. According to modern labour market literature NAIRU is defined as the rate of unemployment at which inflation stabilises in the absence of any wage-price surprises. Conventional thinking about the equilibrium unemployment rate assumes that in the long run NAIRU is determined solely y supply side factors of the labour market. We show that quite complex adjustment dynamics may arise even in simple log-linear wage-price models. Furthermore we provide a survey on a number of “hysteresis-mechanisms” which could lead to permanent shifts of equilibrium unemployment over time, implying that an unique long run NAIRU may not even exist.In addition to theoretical issues we refer to two serious problems which might arise with empirical applications of the NAIRU concept. First various empirical studies suggest that results highly depend on model specifications. Second a considerable amount ... Cet article fournit une brève revue des principales questions théoriques et empiriques concernant le concept de NAIRU. Selon la littérature récente portant sur le marché du travail, le NAIRU est défini comme le taux de chômage qui stabilise l’inflation en l’absence de toutes surprises sur l’évolution des prix et des salaires. L’approche conventionnelle du taux de chômage d’équilibre suppose qu’à long terme, le NAIRU est uniquement déterminé par des facteurs d’offre affectant le marché du travail. On montre que des ajustements dynamiques relativement complexes peuvent exister même dans des modèles log-linéaires simples de formation des prix et des salaires. En outre, cet article passe en revue un certain nombre de “mécanismes d’hystérèse” pouvant provoquer des variations temporelles permanentes du taux de chômage d’équilibre, ce qui implique qu’un NAIRU de long terme peut ne pas exister.Outre les problèmes théoriques, il est mentionné que les applications quantitatives du concept ...

Suggested Citation

  • Karl Pichelmann & Andreas Ulrich Schuh, 1997. "The NAIRU-Concept: A Few Remarks," OECD Economics Department Working Papers 178, OECD Publishing.
  • Handle: RePEc:oec:ecoaaa:178-en
    DOI: 10.1787/415745735115
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    Cited by:

    1. Charlotte du Toit & Reneéa Koekemoer, 2003. "A Labour Model For South Africa," South African Journal of Economics, Economic Society of South Africa, vol. 71(1), pages 49-76, March.
    2. Julian Reiss, 2001. "Natural economic quantities and their measurement," Journal of Economic Methodology, Taylor & Francis Journals, vol. 8(2), pages 287-311.
    3. Driver, Ciaran & Muñoz-Bugarin, Jair, 2010. "Capital investment and unemployment in Europe: Neutrality or not?," Journal of Macroeconomics, Elsevier, vol. 32(1), pages 492-496, March.
    4. Beissinger, Thomas, 2003. "Strukturelle Arbeitslosigkeit in Europa : eine Bestandsaufnahme (Structural unemployment in Europe * an inventory)," Mitteilungen aus der Arbeitsmarkt- und Berufsforschung, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany], vol. 36(4), pages 411-427.
    5. Beissinger, Thomas, 2003. "Strukturelle Arbeitslosigkeit in Europa: Eine Bestandsaufnahme," University of Regensburg Working Papers in Business, Economics and Management Information Systems 389, University of Regensburg, Department of Economics.
    6. Beissinger, Thomas, 2003. "Strukturelle Arbeitslosigkeit in Europa : eine Bestandsaufnahme (Structural unemployment in Europe * an inventory)," Mitteilungen aus der Arbeitsmarkt- und Berufsforschung, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany], vol. 36(4), pages 411-427.
    7. Martin Zagler, 2000. "On the sources of the high growth experience in Austria," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 6(2), pages 210-220, May.
    8. C. B. Du Toit & Renee´ Van Eyden & Marc Ground, 2006. "Does South Africa Have the Potential and Capacity to Grow at 7 Per Cent?: A Labour Market Perspective," Working Papers 200603, University of Pretoria, Department of Economics.
    9. Jakob B. Madsen, 2005. "Empirical Estimates of the NAIRU," LABOUR, CEIS, vol. 19(3), pages 563-593, September.
    10. Raffaele Fargnoli, 2020. "Adapting the EU Fiscal Governance to New Macroeconomics and Political Realities," RSCAS Working Papers 2020/03, European University Institute.
    11. Tatiana Blinova & Vladimir Markov & Victor Rusanovskiy, 2015. "Interregional Differentiation of the Youth Unemployment Rate in Russia," ERSA conference papers ersa15p601, European Regional Science Association.
    12. Broadstock, David C. & Collins, Alan, 2010. "Measuring unobserved prices using the structural time-series model: The case of cycling," Transportation Research Part A: Policy and Practice, Elsevier, vol. 44(4), pages 195-200, May.

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