natural rate of unemployment

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natural rate of unemployment

n
(Economics) another name for NAIRU
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But an equal driver of this result is that the central bank has a flawed objective function and fails to understand that the economy obeys the natural rate hypothesis. The bank has an unemployment target of zero and assumes it can maintain the unemployment rate below the natural rate without igniting increasing inflation.
Most economists, new-classical and new-Keynesians alike, hold to some variety of the natural rate hypothesis. The idea that the economy gravitates towards a natural rate of unemployment that, in the words of Milton Friedman (1968),
Our results appear more in line with those in Leon-Ledesma (2002) who, using quarterly data over the period 1985-1999, provides broad support for the natural rate hypothesis for the states of the United States, while hysteresis for a sample of 12 European Union countries for the case with cross-sectionally demeaned data.
Reflections on the natural rate hypothesis. Journal of Economic Perspectives, 11(1), 3-10.
The zero-output-gap target is natural to Taylor because it captures the message of the natural rate hypothesis. He has always endorsed this hypothesis in his writings, maintaining (i) that models should reflect and that policymakers should take into account the notion that "the economy tends to return to the natural rate of unemployment" irrespective of monetary policy rule and (ii) that, conformably, "no long-term relationship exists between inflation and the deviation of real GDP from potential GDP." (4) With no scope for policymakers to steer output away from the natural level in the long run, a loss function featuring a zero-output-gap objective better reflects the economic structure.
The hysteresis hypothesis has been formulated as a unit root process, and its rejection lends support to the natural rate hypothesis (if no breaks are included in the specification) and the structuralist hypothesis (if breaks are allowed for).
However, it cannot systematically control the level of real variables (the natural rate hypothesis).
Cogley and Sargent also perform Solow-Tobin tests of the natural rate hypothesis at various points in time.
On the other hand if [Theta] = 0, the natural rate does not change over time and hence the natural rate hypothesis holds.
According to the Natural Rate Hypothesis (NRH), only unanticipated (as opposed to anticipated) money supply movements should influence production.
This wrongminded conclusion cannot be justified by appeal to the well-known natural rate hypothesis, according to which there is no long-run tradeoff between unemployment and inflation.
This paper investigates the natural rate hypothesis, using the Lucas and Hanson approaches for ten Latin American countries.

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