NAIRU
NAIRU is the unemployment rate consistent with stable inflation — below it, wage/price pressure tends to rise; above it, inflation tends to cool.
Definition
The non-accelerating inflation rate of unemployment is a time-varying reduced form, not a physical constant. It embeds labor-market structure, expectations, and bargaining. Estimates move with the sample; that is a feature of a poorly identified object, not a bug you can ignore.
Why it matters
Policy and rates desks still talk ‘slack vs NAIRU’ when they argue whether a 3.5% U3 is overheating. If NAIRU is mis-measured, the stance call is wrong.
Case
Late 2010s US unemployment sat below many NAIRU estimates without a wage spike. 2021–22 inflation arrived from a different mix (goods, energy, reopening) than a 1970s Phillips story.
How to read it
Treat NAIRU as a range with wide standard errors. Pair it with vacancies, participation, and wage trackers — not a single CBO point.
Key papers
Landmark references with real publisher or arXiv links — not token-overlap noise.
- The Role of Monetary PolicyFriedman · 1968 · American Economic ReviewNatural-rate hypothesis behind NAIRU.