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  5. The NAIRU, Unemployment and Monetary Policy

Journal of Economic Perspectives

ISSN 0895-3309 (Print) | ISSN 1944-7965 (Online)

The NAIRU, Unemployment and Monetary Policy

  • Douglas Staiger
  • James H. Stock
  • Mark W. Watson
Journal of Economic Perspectives
vol. 11, no. 1, Winter 1997
(pp. 33–49)
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Abstract

This paper examines the precision of conventional estimates of the NAIRU and the role of the NAIRU and unemployment in forecasting inflation. The authors find that, although there is a clear empirical Phillips relation, the NAIRU is imprecisely estimated, forecasts of inflation are insensitive to the NAIRU, and there are other leading indicators of inflation that are at least as good as unemployment. This suggests deemphasizing the NAIRU in public discourse about monetary policy and instead drawing on a richer variety of leading indicators of inflation.

Citation

Staiger, Douglas, James H. Stock, and Mark W. Watson. 1997. "The NAIRU, Unemployment and Monetary Policy." Journal of Economic Perspectives, 11 (1): 33–49. DOI: 10.1257/jep.11.1.33

JEL Classification

  • E24 Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital
  • E31 Price Level; Inflation; Deflation
  • E52 Monetary Policy
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