[PEN-L:29906] RE: RE: RE: Re: Re: Bushies say NAIRU is 4.9

["Devine, James" <jdevine@xxxxxxx>]

Title: RE: [PEN-L:29905] RE: RE: Re: Re: Bushies say NAIRU is 4.9

In some ways the choice of one vs. the other represents the political perspective of the economist (within the mainstream). The "natural rate" is Chicago-school lingo, whereas the "NAIRU" is more MIT or Yale (Modigliani, Tobin, etc.) in its feel.

According to the MF, the "natural rate" is the unemployment rate "ground out" by a Walrasian general equilibrium system once a bunch of imperfections are introduced. (This, of course, ignores the fact that after one or two "imperfections" -- i.e., elements of the real world -- have been introduced, the Walrasian GE system becomes incoherent, producing multiple equilibria, etc.) The NAIRU, on the other hand, simply describes the threshold behavior: if unemployment gets "too low," inflation takes off. This can be consistent with theories that base the NAIRU on bargaining power issues (e.g., Carlin & Soskice, later aped by Blanchard & Katz with attribution).

 
Jim Devine jdevine@xxxxxxx &  http://bellarmine.lmu.edu/~jdevine
-----Original Message-----
From: Forstater, Mathew [mailto:forstaterm@xxxxxxxx]
Sent: Tuesday, August 27, 2002 8:09 AM
To: pen-l@xxxxxxxxxxxxxxxxxxx
Subject: [PEN-L:29905] RE: RE: Re: Re: Bushies say NAIRU is 4.9

My understanding has always been that the "natural rate of unemployment" and the "NAIRU" are technically different, though looking like and supporting some similar conclusions.  Mat