The Natural Rate of Unemployment and its Implications for Economic Policy
The analysis of the inflation-unemployment tradeoff has undergone several stages during the post-war era. The first was marked by the acceptance of A.W. Phillips’ 1957 hypothesis and the subsequent Phillips curve. The next stage – marked by Friedman’s contributions – revealed a vertical long-run Phi...
Main Authors: | , , |
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Format: | Article |
Language: | English |
Published: |
General Association of Economists from Romania
2011-02-01
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Series: | Theoretical and Applied Economics |
Subjects: | |
Online Access: |
http://store.ectap.ro/articole/566.pdf
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Summary: | The analysis of the inflation-unemployment tradeoff has
undergone several stages during the post-war era. The first was marked
by the acceptance of A.W. Phillips’ 1957 hypothesis and the subsequent
Phillips curve. The next stage – marked by Friedman’s contributions –
revealed a vertical long-run Phillips curve and introduced the natural
rate of unemployment, designating that level of unemployment consistent
with stable inflation. This paper explores the theoretical and empirical
implications that have emerged since the introduction of the natural rate
concept. At the theoretical level, we find that, far from questioning its
existence, the theoretical debates revolve around two main questions:
Can we actually determine the precise level of the natural rate and what
are the appropriate techniques? and How does the natural rate change
over time and what are the factors that influence it? Empirical
knowledge, on the other hand, lags behind. Despite numerous empirical
studies, economists are a long way from an appropriate quantitative
understanding of the determinants and variability of the natural rate,
either across time or across countries. |
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ISSN: | 1841-8678 1844-0029 |