IDEAS home Printed from https://ideas.repec.org/p/wpa/wuwpma/9712013.html
   My bibliography  Save this paper

The NAIRU: A Critical Appraisal

Author

Listed:
  • Malcolm Sawyer

    (The Jerome Levy Economics Institute)

Abstract

This paper is concerned with the question of the relevance of the NAIRU for policy formulation. However, that question leads to the following consideration. The estimates for the NAIRU are based on the econometric estimation of models of the economy. Particular models are used and particular interpretations are placed on the relationship between the variables which the model involves. Since the NAIRU can never be directly observed, resort has to be made to the econometric estimation of wage and price equations from which an equilibrium solution for unemployment is derived and labeled the NAIRU. It is therefore important to know how valid those models are and the estimates derived from those models. Whilst some have pointed to the unreliability of those estimates (e.g. Setterfield et alia, 1992) and others to the degree of uncertainty surrounding the estimates (e.g. Madsen, 1997), others have put a great deal of faith in specific estimates: for example the ‘Tightness in the labor market is measured by the excess of CBO's estimate of the non accelerating inflation rate of unemployment (NAIRU) over the actual unemployment rate. It is an indicator of future wage inflation' (Congressional Budget Office, 1994, p. 4), and that Office uses an estimate of 6 percent for the NAIRU. One expression of the belief in the NAIRU is given by Stiglitz when he writes that ‘I have become convinced that the NAIRU is a useful analytic concept. It is useful as a theory to understand the causes of inflation. It is useful as an empirical basis for predicting changes in the inflation rate. And it is useful as a general guideline for thinking about macroeconomic policy' (Stiglitz, 1997, p. 3). The focus pf this paper is not on the reliability or otherwise of estimates of the NAIRU, but rather to evaluate the theoretical foundation of the models from which the NAIRU has been derived. For if those models are on some relevant criteria judged to be unsound, then estimates and policy conclusion derived are seemly unsound.

Suggested Citation

  • Malcolm Sawyer, 1997. "The NAIRU: A Critical Appraisal," Macroeconomics 9712013, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwpma:9712013
    Note: Type of Document - Acrobat PDF; prepared on IBM PC ; to print on PostScript; pages: 38; figures: included
    as

    Download full text from publisher

    File URL: https://econwpa.ub.uni-muenchen.de/econ-wp/mac/papers/9712/9712013.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Robert J. Gordon, 1997. "The Time-Varying NAIRU and Its Implications for Economic Policy," Journal of Economic Perspectives, American Economic Association, vol. 11(1), pages 11-32, Winter.
    2. Cross,Rod Preface by-Name:Blanchard,Olivier (ed.), 1995. "The Natural Rate of Unemployment," Cambridge Books, Cambridge University Press, number 9780521483308.
    3. Malcolm C. Sawyer, 1983. "Business Pricing and Inflation," Palgrave Macmillan Books, Palgrave Macmillan, number 978-1-349-03166-5, December.
    4. Malcolm C. Sawyer, 1992. "On Imperfect Competition and Macroeconomic Analysis," Palgrave Macmillan Books, in: Alfredo Monte (ed.), Recent Developments in the Theory of Industrial Organization, chapter 4, pages 79-113, Palgrave Macmillan.
    5. repec:sae:niesru:v:111:y::i:1:p:62-85 is not listed on IDEAS
    6. R. Layard & S. Nickell, 1985. "The Causes of British Unemployment," National Institute Economic Review, National Institute of Economic and Social Research, vol. 111(1), pages 62-85, February.
    7. Sawyer, Malcolm C, 1982. "Collective Bargaining, Oligopoly and Macro-Economics," Oxford Economic Papers, Oxford University Press, vol. 34(3), pages 428-448, November.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Rudy Fichtenbaum, 2003. "Is there a natural level of capacity utilization?," Forum for Social Economics, Springer;The Association for Social Economics, vol. 33(1), pages 45-62, September.
    2. Malcolm Sawyer, 1997. "Aggregate Demand, Investment and the NAIRU," Macroeconomics 9712012, University Library of Munich, Germany.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. repec:spo:wpecon:info:hdl:2441/6120 is not listed on IDEAS
    2. Jérôme Creel & Eric Heyer & Mathieu Plane, 2011. "Petit précis de politique budgétaire par tous les temps," Post-Print hal-03460510, HAL.
    3. repec:hal:spmain:info:hdl:2441/5l6uh8ogmqildh09h561p0po1 is not listed on IDEAS
    4. Amitava Krishna Dutt & Peter Skott, 2006. "Keynesian Theory and the AD-AS Framework: A Reconsideration," Contributions to Economic Analysis, in: Quantitative and Empirical Analysis of Nonlinear Dynamic Macromodels, pages 149-172, Emerald Group Publishing Limited.
    5. repec:spo:wpmain:info:hdl:2441/6120 is not listed on IDEAS
    6. repec:hal:wpspec:info:hdl:2441/2005 is not listed on IDEAS
    7. Bozani, Vasiliki & Drydakis, Nick, 2011. "Studying the NAIRU and its Implications," IZA Discussion Papers 6079, Institute of Labor Economics (IZA).
    8. Bardsen, Gunnar & Eitrheim, Oyvind & Jansen, Eilev S. & Nymoen, Ragnar, 2005. "The Econometrics of Macroeconomic Modelling," OUP Catalogue, Oxford University Press, number 9780199246502.
    9. repec:hal:spmain:info:hdl:2441/5l6uh8ogmqildh09h61k5ih10 is not listed on IDEAS
    10. Robert M. Coen, 1999. "The NAIRU and Wages in Local Labor Markets," American Economic Review, American Economic Association, vol. 89(2), pages 52-57, May.
    11. Aurélien Gaimon & Vincent Lapegue & Paola Veroni & Noé N'Semi & Frédéric Reynés & Maël Theulière, 2007. "Does the interaction between shocks and institutions solve the OECD unemployment puzzle ? A theoretical and empirical appraisal," Working Papers hal-03602950, HAL.
    12. repec:hal:wpspec:info:hdl:2441/6120 is not listed on IDEAS
    13. Bruno Amable & Jerome Henry & Frederic Lordon & Richard Topol, 2004. "Complex Remanence vs. Simple Persistence: Are Hysteresis and Unit-Root Processes Observationally Equivalent?," International Symposia in Economic Theory and Econometrics, in: Economic Complexity, pages 67-89, Emerald Group Publishing Limited.
    14. Eric Heyer, 2010. "Efficacité de la politique économique et position dans le cycle : le cas de la défiscalisation des heures supplémentaires en France," SciencePo Working papers Main hal-01069450, HAL.
    15. repec:hal:spmain:info:hdl:2441/6120 is not listed on IDEAS
    16. Skott, Peter, 2005. "Fairness as a source of hysteresis in employment and relative wages," Journal of Economic Behavior & Organization, Elsevier, vol. 57(3), pages 305-331, July.
    17. Bårdsen, Gunnar & Nymoen, Ragnar, 2006. "U.S. natural rate dynamics reconsidered," Memorandum 13/2006, Oslo University, Department of Economics.
    18. Aurélien Gaimon & Vincent Lapegue & Paola Veroni & Noé N'Semi & Frédéric Reynés & Maël Theulière, 2007. "Does the interaction between shocks and institutions solve the OECD unemployment puzzle ? A theoretical and empirical appraisal," SciencePo Working papers Main hal-03602950, HAL.
    19. Antonella Palumbo, 2008. "I metodi di stima del PIL potenziale tra fondamenti di Teoria economica e Contenuto empirico," Departmental Working Papers of Economics - University 'Roma Tre' 0092, Department of Economics - University Roma Tre.
    20. repec:hal:spmain:info:hdl:2441/5l6uh8ogmqildh09h61ql8ubo is not listed on IDEAS
    21. repec:spo:wpmain:info:hdl:2441/9726 is not listed on IDEAS
    22. repec:spo:wpecon:info:hdl:2441/9726 is not listed on IDEAS
    23. repec:hal:spmain:info:hdl:2441/2005 is not listed on IDEAS
    24. Aurélien GAIMON & Vincent LAPEGUE & Paola MONPERRUS-VERONI & Noé N’SEMI & Frédéric REYNÈS & Maël THEULIERE, 2007. "Does the interaction between shocks and institutions solve the OECD unemployment puzzle? a Theoretical and Empirical Appraisal," Documents de Travail de l'OFCE 2007-34, Observatoire Francais des Conjonctures Economiques (OFCE).
    25. repec:spo:wpmain:info:hdl:2441/5l6uh8ogmqildh09h61ql8ubo is not listed on IDEAS
    26. Carl Chiarella & Peter Flaschel, 1999. "Disequilibrium Growth Theory: Foundations, Synthesis, Perspectives," Working Paper Series 85, Finance Discipline Group, UTS Business School, University of Technology, Sydney.
    27. Chiarini, Bruno & Piselli, Paolo, 2001. "Identification and dimension of the NAIRU," Economic Modelling, Elsevier, vol. 18(4), pages 585-611, December.
    28. King, Thomas B. & Morley, James, 2007. "In search of the natural rate of unemployment," Journal of Monetary Economics, Elsevier, vol. 54(2), pages 550-564, March.
    29. repec:hal:wpspec:info:hdl:2441/9726 is not listed on IDEAS
    30. repec:spo:wpecon:info:hdl:2441/5l6uh8ogmqildh09h61ql8ubo is not listed on IDEAS
    31. repec:hal:spmain:info:hdl:2441/9726 is not listed on IDEAS
    32. Éric Heyer & Frédéric Reynès & Henri Sterdyniak, 2005. "Variables observables et inobservables dans la théorie du taux de chômage d'équilibre. Une comparaison France/États-Unis," Revue économique, Presses de Sciences-Po, vol. 56(3), pages 593-603.
    33. Aurélien Gaimon & Vincent Lapegue & Noé N'Semi & Frédéric Reynés & Maël Theulière & Paola Veroni, 2008. "Does the interaction between shocks and institutions solve the OECD unemployment puzzle ? A theoritical and empirical appraisal," Post-Print hal-03602948, HAL.
    34. Salemi, Michael K, 1999. "Estimating the Natural Rate of Unemployment and Testing the Natural Rate Hypothesis," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 14(1), pages 1-25, Jan.-Feb..
    35. Ian McDonald, 2009. "Behavioural macroeconomics and wage and price setting: Developing some early insights of John Maynard Keynes and Joan Robinson," CAMA Working Papers 2009-11, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.

    More about this item

    JEL classification:

    • E - Macroeconomics and Monetary Economics

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wpa:wuwpma:9712013. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: EconWPA (email available below). General contact details of provider: https://econwpa.ub.uni-muenchen.de .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.