Unemployment rate does not accelerate inflation

In economics is inflation not accelerating unemployment , and inflation rate of unemployment or inflation-neutral unemployment ( English Non Accelerating Inflation Rate of Unemployment , short NAIRU ) called the unemployment rate , which is at a constant rate of inflation is set permanently.

Concept of the NAIRU

According to the NAIRU concept, the unemployment rate falls temporarily when inflation accelerates. The reason is that rising inflation lowers real wages and thus labor costs and employers hire more workers. Conversely, slowing inflation increases unemployment. Both effects are based on the fact that nominal wages are generally contractually fixed for a longer period of time. In the borderline case of a constant inflation rate, the unemployment rate agrees with its natural value .

Assuming adaptive inflation expectations , the inflation expectations correspond to the actual inflation rate if this remains stable. In contrast, when inflation accelerates, the rate of inflation is underestimated and when inflation slows it is overestimated. With this assumption, the NAIRU is described by a modified Phillips curve:

${\displaystyle \pi =\pi ^{e}-a(U-U^{*}).}$

In this formula, the inflation rate represents the expected inflation rate, a positive parameter, the actual unemployment rate and the NAIRU or the natural unemployment rate , which is identical to the NAIRU with adaptive expectations. The actual unemployment rate will be in line with the NAIRU if inflation expectations are met. ${\displaystyle \pi }$ ${\displaystyle \pi ^{e}}$ ${\displaystyle a}$ ${\displaystyle U}$ ${\displaystyle U^{*}}$

There are two interpretations of the above formula in the literature: First, the unemployment rate can be lowered by accelerating inflation. Secondly, there is a risk of inflation if the unemployment rate falls below the NAIRU, because in this case wage increases follow, which are passed on by the companies through rising prices.

See also

• NAWRU
• natural unemployment rate

Web links

• Wolfgang Franz, news from NAIRU? Discussion paper of the Center for European Economic Research
• Turner, Dave, et al. "Estimating the Structural Rate of Unemployment for the OECD Countries". OECD Economic Studies 33 (2001): 171-216. OECD.org. 16 July 2007 (PDF file; 382 kB)
• Eckhard Hein, The NAIRU from a post-Keynesian perspective (PDF file; 364 kB)

literature

• Ball, L. and NG Mankiw (2002) The NAIRU in Theory and Practice. Journal of Economic Perspectives Vol. 16 (4), pp. 115-136.
• Pichelmann, K. and AU Schuh (1997), "The NAIRU-Concept: A Few Remarks", OECD Economics Department Working Papers, No. 178, OECD Publishing, doi : 10.1787 / 415745735115 , SourceOECD.
• Camille Logeay (2006), “The Nairu: Explanation or Reflex of the Unemployment Rate - The Hypothesis of Natural Unemployment and its Validity for the European Monetary Union”, “Hochschulschriften” · Volume 106, Marburg, ISBN 3-89518-559-0
• Claar, Victor V., "Is the NAIRU More Useful in Forecasting Inflation than the Natural Rate of Unemployment?" Applied Economics 38 (October 2006): 2179-89, Abstract: EbscoHost , July 16, 2007

Individual evidence

1. ↑ Olivier Blanchard and Gerhard Illing : Macroeconomics. Pearson Deutschland GmbH, 7th ext. u. updated edition. 2017, p. 258.