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When all are NAIRU: Hysteresis and behavioural inertia

journal contribution
posted on 2002-09-27, 00:00 authored by Tom StanleyTom Stanley
Smyh and Easaw (2001) use a fully flexible ratchet model to estimate the US NAIRU. However, such flexible notions of NAIRU cleanse the natural rate hypothesis of all policy and theoretical relevance. Six successive years of unemployment rates below these estimated NAIRUs produce declining inflation, not the accelerating inflation promised by the natural rate hypothesis. An alternative model of inflation dynamics, the behavioural inertia hypothesis, is offered and shown to fit the US inflation-unemployment relation quite well. This behavioural inertia model is consistent with the recent US experience of low and falling unemployment accompanied by low and falling rates of inflation.

History

Journal

Applied Economics Letters

Volume

9

Issue

11

Pagination

753 - 757

Publisher

Tayloy & Francis

Location

Abingdon, Eng.

ISSN

1350-4851

Publication classification

CN.1 Other journal article

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